VIEWPOINT: Has shippers’ acceptance of fuel surcharge levels reached its limit?

Last month saw independent truckers on the West Coast, outraged by ballooning fuel costs, threatening to bring B.C.’s economy to a standstill unless the government cut prices at the pump. Nave as their actions may be, the point was that, according to the Teamsters anyway, the latest fuel price spikes have these owner/operators teetering on the brink of bankruptcy.

On the East Coast, truckers were more sedate but just as concerned. Members of the Truckers Association of Nova Scotia were pushing their executives for a fuel escalation charge to be addended to the government work contracts they negotiated earlier this year. They were terrified that a fuel spike this summer would drive them into bankruptcy.

What does it all mean? And should shippers care?

Considering the number of Canadian shippers paying fuel surcharges 99% of those using truck transport, 94% of those using courier services, 92% of those with airfreight, 87% of those relying on rail and 85% of those dealing with marine lines, according to our recently completed Transportation Buying Trends Survey, conducted in partnership with CITT and the Canadian Industrial Transportation Association the answer to the second question is obvious. Anything to do with fuel pricing should be a concern because the price of oil is playing a huge role in determining the direction of freight rates right now. In fact I’ve heard of cases where fuel costs are representing almost 25% of truckload costs for some shippers in certain lanes.

Any indication that the financial stability of Canada’s owner/operators may be threatened should also be cause for concern, because these 36,000 or so independent truck owners are critical to the vitality of the country’s trucking industry. Not only do they represent a very cost-effective way for motor carriers to quickly add capacity at very little personal risk, they’re among the few professional drivers still willing to deal with the hassle of crossing the U.S. border and being on the road for weeks at a time. The current capacity crunch, another major contributor to rising rates, is directly attributable to the loss of more than 10% of Canada’s owner/operators over the past five years, coupled with the collapse of about a quarter of the nation’s small motor carriers.

Shippers who have kept a close eye on the almost universal implementation of fuel surcharges by Canadian motor carriers may wonder why owner/operators still find themselves in trouble. Considering the acute driver shortage there’s likely no motor carrier in the country that doesn’t have trucks parked or is not investing in new iron because it can’t find drivers it’s hard to believe motor carriers would continue to be so myopic as to screw their most precious resource by not passing on the appropriate portion of the surcharge to their owner/operators. Even if there still are such cases, the driver shortage makes it awfully easy for owner/operators feeling abused to jump to a competing carrier.

To be honest I’m rather confounded by the apparent plight of owner/operators. I thought the use of surcharges had basically made fuel hikes a non-issue for truckers. I have no empirical evidence, just a gut feeling, about what may be setting things astray. And that brings us to the much more complicated question of what does this all mean? I suspect motor carriers, perhaps the smaller and mid-sized ones, are finding that the latest diesel fuel price spikes may have reached a level where key customers may balk at yet another round of fuel surcharge increases. Nearly two thirds of the small businesses responding to a U.S.-based poll reported feeling the impact of rising prices but 52% of those admitted they were not passing on the impact of the higher fuel costs to their own customers.

Which could mean we’re facing the start of a dilemma where shippers can’t afford to accept any higher fuel surcharges and carriers can’t afford to eat the fuel price increases.

Although there’s no consensus on the direction of fuel pricing (many respected economists were predicting a drop in pricing this year) there are distinct fears we haven’t reached the peak of fuel pricing yet. OPIS, one of the better known oil price information services and think tanks in North America, for example, recently warned that diesel prices as high as US $3.00 per US gallon could be relatively common at the pump 15 months from now.

And that will definitely add fuel to the fire (pardon the pun) when it comes to rate negotiations.

WORTH REPEATING
"The time when we could count on cheap oil and even cheaper natural gas is clearly ending."
— Dave O’Reilly, chairman, Chevron/Texaco