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Fuel prices, lower rates shutting down small trucking firms

High fuel prices have come at the same time that there is increasing downward pressure on rates paid to truckers because of the slowing economy. The result is many small trucking companies in Mississippi are going out of business.

“Shippers and brokers are trying to push rates down because of the poor economy and the number of struggling trucking companies,” said Pat Kemp with Rocking C Truck Lines in Gulfport. “The small mom and pop trucking companies are taking loads at whatever they can get just to put food on the table, which drives rates even lower. So they are giving away shipments to people who can just barely get by. The small trucking companies are struggling. Two or three go out of business in Mississippi every week because they can’t survive.”

Kemp said evidence of that is looking at used truck lots. Because of the number of companies that have been driven out of business, large numbers of used trucks are for sale.

Higher fuel costs have increased operating costs at Rocking C Truck Lines by 37%. Kemp said they can’t pass on increased costs for delivering loads because they are restricted by contracts with shippers and brokers.

“We don’t have the opportunity to increase rates in any way,” Kemp said. “Our profit margin dropped from 4% to 2.5% in just the past year,” Kemp said. “We walk a very thin wire. Fuel prices are even higher on the West Coast and the East Coast, making it hard for trucking companies to survive. It affects the consumer in the end. Think of where all your stuff comes from and how it gets there. Trucking companies move about 85% of all general commodities in the U.S.”

The bottom line for the trucking companies that have remained in business is that there is a great deal of concern about the situation. “It’s scary,” Kemp said.

It may be obvious that high fuel costs have a big impact on trucking companies. Less obvious is the concern about the impact of the high prices on gasoline tax revenues used to fund highway construction and maintenance programs.

“We definitely see a flattening of our revenue,” said Dick Hall, chairman of Mississippi Transportation Commission. “The price has an effect on volume. Our revenue that comes into the state is not a percent of the cost of gasoline, but a certain cents per gallon. If it were a percent, there would be no problem. But as the price goes up, people use less gas and are more likely to buy vehicles that get good gas mileage.”

Hall said there is concern now, but even more down the road: Five years from now, particularly if gasoline goes to $2 per gallon, there could be a serious detrimental impact on the revenues used to build highway systems.

Adding to the problem are alternative fuels such as ethanol and alcohol that get a tax break.

“As they go more and more to alternative fuels, that will have more of an impact,” Hall said. “We are quite concerned about it long range. If the trends continue and no changes are made, it will become a very serious problem. There is no doubt about it. I understand some states have gone to different methods to support their highways with taxes based on mileage.”

While the nation wants to encourage energy efficiency to reduce emissions and dependence on foreign oil, improving the efficiency of an 18-wheel truck from three miles per gallon to four miles per gallon results in 25% less taxes being paid. Hall said the declining revenues also have to be factored in to higher costs for asphalt and other materials linked to high oil prices.

“The cost of construction and materials goes up and our revenues are flattening out,” Hall said. “That is not good.”

The current high costs of fuel are having an impact on road builders, particularly dirt contractors that move a lot of dirt and operate a lot of heavy machinery, said Don Richardson, executive director of the Mississippi Road Builders Association.

“For people who move a lot of dirt, fuel prices are a big factor,” Richardson said. “The higher fuel prices also impact the cost of asphalt since asphalt is made from oil. With bridge builders, there is not a lot of fuel involved there so it is not so much a factor.”

Indirectly high prices for asphalt and other materials can mean less business for road builders. MDOT has a limited pool of money for highway construction. So if bids come in high, there may be less money available to do other projects.

However, insurance woes are a bigger concern to road builders than high energy costs. Insurance in all areas from liability to providing health care insurance for employees is the industry’s biggest concern.

“It is just costing so much more to run a business now, but that is not unique to road builders,” Richardson said.

Some people assume that gasoline retailers make more money when prices are high. But that isn’t true, says Jerry Wilkerson, executive director of the Mississippi Petroleum Marketers and Convenience Stores Association.

“The negative impact it has on us is actually replacing inventory,” Wilkerson said. “When gas is going up, when we sell our supply and it has to be replaced, it costs more to replace than what you sold the other for. So it is a real negative when it comes to cash flow. That is one of the main problems that we have. The public feels like when prices are going up that convenience stores are making gobs of money. The reverse is true. When we are raising prices, we aren’t making more money. We make more money when prices are going down. When it is coming down it costs less to replace it. So we always want prices to go down.”

Wilkerson said they are hoping that gas prices are leveling out, and there won’t be a big increase in prices in the near future. With vacation driving near the end with school starting, that should increase the amount of gasoline in storage — resulting in better prices.

“Hopefully inventory will go up and stay up, and prices will level out,” Wilkerson said. “The reserves are up. The stock is growing each day so that helps bring prices down.”

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

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