Fuel surcharges may be the only answer

by Paul Stastny

TORONTO, Ont. – The hard lessons of the last diesel price spike in 1999/2000 may still be fresh in the memories of independent owner/operators and carriers, but it’s debatable if they are being applied during the current diesel price squeeze.

As diesel prices squirt ever closer to $1 per litre (the national average retail diesel price was 84.4 cents per litre as Truck News was going to press with all industry analysts forecasting further increases in the event of a war in Iraq), various initiatives are underway to provide relief to beleaguered truckers. Trucking associations are lobbying their provincial governments, protesting high fuel taxes. In New Brunswick, an albeit poorly attended demonstration against mounting fuel and insurance costs drew seven rigs and 21 passenger cars to a stretch of the Trans-Canada Highway between Fredericton and Oromocto.

There is talk in Ontario of mounting much larger demonstrations.

“Here we go again at the bottom of the food chain. Everything gets passed on to the owner/operator and we can’t pass (those costs) on to anyone,” Bill Wellman, one of the masterminds behind the last round of owner/operator protests back in 2000, tells Truck News.

He blames shippers for being too stingy with fuel surcharges.

“…Fuel is at 82 cents and we are only getting 4.5 cents per litre (as a fuel surcharge). What happened GM? They like to squash people because their shareholders like to get rich. That’s the simple answer. It’s greed.”

Although no longer tied to any formal owner/operator lobby group following his departure from the troubled Owner-Operator’s Business Association of Canada, Wellman says he remains deeply involved in industry issues and is up to the task of orchestrating new protests.

“There comes a time when somebody has to do something. But you have to know what you’re doing, who you’re going to approach,” Wellman tells Truck News. “If it has to be done, I will do it…I do have the power to call people in and I will make it happen.”

However, he declined to discuss any specific plans for staging a protest.

But apart from raising public awareness to the plight of truckers, these actions, according to one industry expert, may prove to be little more than vents for frustration while “screaming and yelling at the wrong people.”

It appears that still the most important lesson for coping with increasing fuel costs is fuel surcharging.

“The carriers that can’t find the strength to stick to their guns on the fuel surcharge are losing twice. They’re probably going to lose their owner/operators if those owner/operators are free to move and, of course, they’re not generating the revenue,” says Chris Bennett, general manager of TSF Group, a Waterloo, Ont. company providing financial services to the trucking industry.

With retail diesel pricing clawing near $1 per litre, the industry will probably witness more company failures and acquisitions now than in 2000, according to Bennett: “A lot of those carriers that hung on (from 2000) didn’t really recover. It’s a triple-whammy – low freight volumes’ effect on rates, high insurance costs and high fuel prices. All three things are coming together. We didn’t have all three elements last time around.”

It is a harsh reality that some carriers, being pummeled by soaring diesel prices, are becoming prey to more financially healthy carriers.

“My small carriers are frightened to death. My large carriers are licking their chops because it’s acquisition time. You pick up a small carrier for pennies on the dollar. You pick up their freight volume, bring in their owner/operators, their drivers, their equipment…They certainly would not want to gloat about it, but in tough times like this, when you’re a large carrier, well operated, well managed, with a good program there are some good pickings,” Bennett says.

Despite the predatory ring to Bennett’s comments, his message is one of industry solidarity and co-operation.

But the trucking industry is incredibly large and diverse. And, not to point fingers, but shippers can be less than co-operative when it comes to surcharges.

“If you go to most of the large customers – and I’m sure it’s the same for anybody else with a Fortune 1000 customer – we’re not negotiating with them for a fuel surcharge. They’re telling you what they’re paying and it’s not going to match what the actual cost is,” says Jim Davidson, President of iWheels Dedicated Logistics.

“Historically, we’ve seen that in niche markets the shippers can hold sway,” Bennett explains. It works because if one hauler doesn’t do it, another will. As Davidson says, “short-term anybody can do anything. Long-term, that won’t work.”

Part of the problem with applying fuel surcharges is the speed of the recent price escalations. By the time a company decides to surcharge, talks to its shippers and settles on a percentage, the prices have gone up again. And according to Lisa MacGillivray, president of the Canadian Industrial Transportation Association (CITA), which represents some of the largest shippers in Canada, “the idea that you can send a fax to a shipper saying that as of Tuesday the fuel surcharge is going to be eight per cent – well, you know, it’s not on.”

MacGillvray states the best time to address fuel surcharges is up front during contract negotiations. Truckers looking for a surcharge should also be prepared to talk about their operating costs. She says her member shippers are more open now to fuel surcharges than in 1999/2000.

David Bradley, president of the Ontario Trucking Association & CEO of the Canadian Trucking Alliance says the days when shippers reduced their costs “out of the hides of the carriers” are over: “I think that most of them have come to realize that they’re going to need to work with the carrier to improve their productivity and efficiency in the supply chain.”

In terms of passing along the proceeds of fuel surcharges from carrier to owner/operator, Todd Spencer, executive vice-president of The Owner-Operator Independent Drivers Association (OOIDA), says, “The best we hear from truckers is that they’re able to offset perhaps half of the increased cost they’re being forced to pay for fuel. In 40 per cent of instances, they’re not passing on all of it.”

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  • hi I was just doing a surcharge audit on the company I work for they keep 22% to 12% of my money and from oct/07 to march/08 I gave up 5400 dollars approx 3 to 3.5% of my total revenue before expences I asked for the total surcharge I was told they need it to stay in bizz I say oh But we all know it just goes into there pocket Can anyone refer me to any case law recently in sask as I have moved on from this company And am preparing a small claims case as well how can i varify fuel price without the companys knowing it I suspect a hiden cost there to so there are profiting hugh from lease ops with say who company is later thnx