High diesel prices drive changes in trucking, logistics

By Dave Hannon -- Purchasing, 5/14/2008 9:54:00 AM

While many shippers struggle to cope with sky-high diesel fuel prices, the logistics industry is literally watching diesel tags eat away its margins. As diesel prices hit a new record high this week of $4.33/gallon, according to the Energy Information Administration, several major logistics firms are taking dramatic steps for both short-term and long-term diesel price relief.

UPS this week ordered 200 hybrid electric vehicles, making it the largest commercial order of such trucks by any company--in addition to another 300 compressed natural gas (CNG) vehicles for its U.S. delivery fleet to be implemented in 2009. The 500 additional vehicles will expand the UPS alternative fuel fleet to 2,218 low-carbon vehicles.

“Trucking companies are getting squeezed at both ends -- by fuel costs and the fact that high gasoline costs are hurting consumers,” says analyst Lee Klaskow of Longbow Research in a Reuters report. “Smaller trucking companies in particular face extremely stiff headwinds.”
Trucking firms and independent truckers are reducing their speeds, sacrificing service levels to reduce fuel costs. "I'm saving between $100 and $200 a week by cutting back from 72-73 mph to 60-65 mph," Dennis Sheridan, who owns an 18-wheeler and hauls freight on a contract basis throughout the Northeast, tells the Associated Press.

The American Trucking Association last week launched a program to make the trucking industry more energy efficient. The proposal recommends making trucks with speed governors at 68 mph. LTL carrier Con-way Freight turned back the speed governors on the engines of its 8,400-tractor fleet to 62 mph earlier this year. Last week it also lowered its governors on its truckload fleet to 65 mph. Truckload carrier Schneider National says it is voluntary cutting the top speed for its 10,600 rigs to 60 mph.

The alternative to reducing fuel costs is reduced profits or worse. FedEx cut its earnings saying since it last provided earnings guidance, its estimated fuel costs for the quarter increased more than 7%, or $100 million from. FedEx Chief Financial Officer Alan B. Graf Jr. says its customers pay surcharges to help offset fuel costs, but “they cannot keep pace in the short-term with rapidly rising fuel prices.”

Trucking firm failures jumped to “catastrophic levels” in the first quarter of the year, industry analyst Donald Broughton tells U.S. News and World Report earlier this month. He estimates that 42,000 trucks, or 2.1%of the nation's capacity, were idled in the first quarter—with nearly 1,000 companies going bankrupt.

(See also: Diesel price surge drives new thinking)