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Fuel prices remain a challenge for transportation industry

Year-to-date, diesel prices are up more than 40%. Compared to a year ago, the price has increased about 26%.
High fuel costs have wreaked havoc on the transportation and shipping industries, spurring companies to make hefty adjustments in their budgets and billings.

“I don’t think anyone would’ve guessed prices would spike this much,” said Don Allee, executive director of the Mississippi State Port Authority at Gulfport.

Chaz Jones, an analyst with Morgan Keegan, said fuel price is a key determinant in investor perception toward trucking stocks, particularly in the truckload group.

“It’s probably one of the top three factors that has the biggest impact on overall investor psychology toward the group, and it doesn’t always necessarily mean that if fuel prices are sky high it’s impacting their bottom line, but in general, it plays a significant role,” he said.

“Looking at the truckload guys in particular, fuel can run anywhere from the mid-to-upper teens to the low-20% range as a component of revenue,” said Jones. “It’s typically the second largest cost component they chase outside of labor costs. As fuel prices go up or down, it can have a dramatic effect on profitability of specific companies.”

Most truckload carriers have fuel surcharge mechanisms in their contracts to help mitigate the overall impact of higher fuel cost prices, but there’s typically a lag time between when the fuel surcharge goes into effect and the price fluctuates, explained Jones.

“Typically, the fuel surcharge mechanisms are a bad thing when fuel prices are going up and a good thing when they’re going down,” he said. “Right now, these guys are probably recouping 80% to 90% of the higher cost of fuel through those surcharge mechanisms.”

The On-Highway Diesel Price average peaked at $2.32 per gallon the week of April 11. On Memorial Day, the average was $2.16.

“If it’d dropped to $1.75 over six weeks, these trucking companies would probably have made a lot of money on fuel with the surcharge in place,” said Jones. “If we hit $2.50 this summer, it will once again have a significant impact on the trucking guys.”

The trucking group is enjoying a fairly tight capacity environment, explained Jones.

“Not many carriers are adding tractors,” he said. “The economy continues to do OK and requires additional equipment each year as it grows. Given that most carriers haven’t been adding tractors, it’s made the supply versus demand dynamic more favorable, and has given them more leverage on the pricing front. Perhaps we’ve seen the level of rate increases soften a little bit. You won’t get a 15% rate increase every year. Now we’re seeing increases in the mid-single digit range.”

Allee said that even though ships don’t habitually refuel at the port, he monitors the impact of rising fuel prices for marine diesel and gasoline.

“The common carriers (rubber tire operators) probably apply some fuel adjustment in the form of a surcharge or add-on, or they adjust rates as rising fuel costs have an impact,” he said. “We do feel the impact of a rising fuel cost from a plant operator’s standpoint. I operate trucks, and I have to watch the impact of fuel on my maintenance and operation of the port.”

When Allee was planning the current fiscal year’s budget, fuel costs were roughly $1.91 per gallon and he calculated a modest 3% to 4% increase in fuel costs.

“It’s safe to say that we underestimated the cost of fuel in the last month of our fiscal year, but we haven’t had to park vehicles,” he said. “We don’t have that large of a fleet. We make certain the staff is aware of conserving fuel, no matter the price of fuel, but we still have a port to run.”

At a meeting last December, Chiquita Brands told analysts the company anticipated spending about $11 million more for fuel and related items in 2005 than in 2004, said company spokesperson Mike Mitchell.

Marc Magliari, a spokesperson for Amtrak, said the railway giant purchases diesel fuel six months in advance, making cost forecasts difficult to manage and harder to project.

“Who could have possibly foreseen these huge price gyrations?,” he said. “It definitely affects our operating costs. We’ve made some fare adjustments, but we haven’t instituted a fare surcharge based solely on fuel as some other carriers have, and so far, we’re not considering one.”

The rising price of fuel hasn’t affected U-Haul’s bottom line or deterred do-it-yourself movers from renting the company’s vast fleet of trucks, said Joanne Fried, senior media and public relations specialist for U-Haul International Inc.

“We have a refueling policy, and because that cost is put back on our customers, it doesn’t affect our operations,” she said. “Also, we haven’t seen a decrease in moves from last year to this year, but unfortunately, with moving, you don’t have a choice. You have to deal with those costs involved.”

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.


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