Diesel surcharges, going, going...

By Damon Francis -- Purchasing, 3/22/2001

There is no question that diesel prices are sliding and that correspondingly the pressure on trucking companies is alleviating somewhat. There is also no shortage of speculation about surcharges possibly disappearing altogether, but many trucking companies are confident that the sun won't break though the surcharge "cloud" any time soon. If diesel prices continue to soften, the trucking industry could be in for another battle between independent contracting truck drivers and customers unwilling to pay add-on freight charges.

Brice Peters, director of sales and marketing for Melton Trucklines in Tulsa, Okla., says, "For a year and a half now we have had a sliding fuel scale in place with all of our customers. Basically, if a customer refused to pay our fuel surcharge from our fuel scale, we wouldn't haul their freight. We had some customers that fought the surcharges at first and turned to mom and pop outfits that were hungry for business and willing to forego the surcharges, but it wasn't long before they realized the reality of the situation." To avoid realizing huge losses, the surcharges are necessary, Peters says. "Last year we billed $3 million from our fuel surcharge scale. Considering that we're a $65 million company, if it was not for the fuel surcharge, we would have had a horrible year."

Peters acknowledges that diesel prices are dropping fast, something most trucking companies and drivers will not do, but he remains firm in the belief that the surcharges will be both necessary and a reality for quite some time. "Our scale has been dropping and dropping fast. As of November, we had a 10% surcharge. It has been consistently declining, which is encouraging, but I would caution against looking too far ahead. This week, our scale is at 6%, which indicates a 4% decline in three months ... but realistically, the price of diesel fuel is still extremely high and everybody knows that. I think diesel prices may show an overall decline for this year, but I seriously doubt they are going to drop back down to the point where they were in '98 and '99 when there was no need for a fuel scale."

According to the U.S. Department of Energy, the average pump price for diesel fuel fell to $1.45 per gallon as of February 26, the lowest diesel price since May of 2000.

Peters continues, "Diesel prices are going down, no question. The way we look at it though, we're going to be dealing with this situation for at least the rest of this year. We're counting on our customers to help us out with the fuel surcharges. We don't foresee that the surcharges will disappear at all. We e-mail our customers every Monday what the national average is and what our fuel scale is so there are no surprises when they get the bill for our freight charges."

Mark Pedersen, owner of All-Ways Trucking Inc. in Medford, Ore., says that his surcharges are still 7% and "they certainly aren't going away any time soon."

Robert Houston, a regional sales manager for B-Right Trucking in Youngstown, Ohio, says, "Equipment will become so scarce that the customer (independent contractor) will be forced to pay the fuel surcharge or increase their rates. Most of our customers are giving us 7%, but we still have just as many people giving us 9% as 6%. If they try to get rid of the surcharges, we'll fight it tooth and nail."