TORONTO, Ont. - The combination of rising prices at the pumps that are cutting deeper and deeper into the pockets of carriers and owner/operators and fuel surcharges that aren't keeping pace, are maki...
LIQUID GOLD: Pulling into a fuel station these days is going to cost you. Many O/O’s are stuck footing the entire bill.
FILL’ER UP: O/Os feel the crunch when it’s time to fill up on fuel.
TORONTO, Ont. – The combination of rising prices at the pumps that are cutting deeper and deeper into the pockets of carriers and owner/operators and fuel surcharges that aren’t keeping pace, are making for an icy mood in the industry.
The Freight Carriers Association of Canada (FCA) reports that between late November and the end of January, diesel fuel prices rose a whopping nine per cent over just two months, and were up 14 per cent from mid-August, 2002.
Even regular unleaded gasoline prices have seen whopping overnight increases in recent weeks. In the Greater Toronto Area, prices jumped about 10 cents overnight on Feb. 10, to about 81.9 cents per litre.
According to weekly pump price survey information from MJ Ervin & Associates Inc., the national average diesel price for the week of Feb. 4 was 72.1 cents per litre.
The survey data shows local prices ranged from as low as 62.5 cents per litre in Calgary to as high as 86.8 cents per litre in Gander, Nfld.
And things aren’t much better if you’re running in the United States. The U.S. Department of Energy reported Feb. 3 that the average price of diesel across the country was US$1.54 per gallon. Factor in the exchange rate, and it’s an even bigger hit for Canadian truck drivers.
“The concern for Canadian owner/operators in light of the increasing costs is the amount of control they have over a corresponding and hopefully matching increase in revenue to compensate for the additional fuel expense,” says Chris Bennett, general manager of TFS Group, a Waterloo, Ont., company that provides financial services for both fleets and owner/operators.
The high pump prices have been fueled by two things – an oilworkers’ strike in Venezuela, and the threat of war in the Gulf. “It’s really quite simple,” says Bob Clapp, Ontario vice-president of the Ottawa-based Canadian Petroleum Products Institute (CPPI).
“A lot of people are very nervous. It’s a worldwide phenomenon. It’s not just us.”
The Venezuela oilworkers’ strike began Dec. 2, and was fading but still going on as this issue was being written.
The strike saw the country’s daily oil production drop by one-third to about 1.2 million barrels per day.
Although oil production is starting to recover, analysts have said the Venezuelan strike will have long-term effects.
Exports dropped dramatically – Venezuela normally supplies more than 13 per cent of U.S. oil imports, and this, combined with a cold winter that has strained domestic energy supplies, plus the Gulf Crisis, had oil prices hovering just under US$34 a barrel in early February.
But here at home, all carriers and owner/operators know and are concerned about, is that they’re forking out a lot of money for diesel at the pumps.
“The price of diesel skyrocketing in the last couple of months makes it even worse” for business on top of trying to comply with U.S. border security programs, says Norm Mackie, vice-president of Mackie Moving Systems in Oshawa, Ont.
The cost of diesel is taking a chunk out of the pocketbook of everyone involved – at the pumps for fleets and O/Os, and in truckload (TL) or less-than-load (LTL) costs for shippers.
“It’s just high enough that carriers have no choice (to levy a fuel surcharge). It’s the only way to recoup their costs,” says Dave Sirgey, president of the FCA.
“Some customers are paying it and others aren’t and others aren’t paying what they should be. For example, we’re having a hard time getting it out of General Motors,” says Mackie.
But it’s the owner/operators who are feeling the biggest pinch in the pocketbook, because of a double-punch – high fuel prices and compensation that isn’t always being passed along in the form of a fuel price cap or a fuel surcharge.
Bennett uses the example of a five-cent-per-litre increase in fuel that translates into a loss of 3.8 cents per mile in income without a corresponding increase in revenue or a capped price as part of a surcharge program.
“At five cents a litre, that’s $4,500 of lost profit per year for the average owner/operator in one year. In the past two years, we’ve seen prices fluctuate more than five cents per litre. Clearly, the impact on the owner/operator is severe in the absence of a coherent fuel surcharge program,” says Bennett.
In a survey of its clients, TFS Group found an almost 50 per cent split in O/Os who are contracted to carriers that have an adequate fuel surcharge.”
It’s fair to say that half of Canada’s owner/operators don’t have a mechanism to increase their revenues to match the escalating costs of fuel,” says Bennett.
Bill Wellman, the O/O who led a fight three years ago for automotive-hauling O/Os in Ontario to be properly compensated with a fuel surcharge, says diesel fuel prices are once again so high that, when fuel costs are combined with WSIB premiums and other monthly payments, “The single owner/operator can almost scrape by but it’s no longer worth having multiple trucks.”
“Despite the pleadings of the Canadian Trucking Alliance (CTA), many carriers have been wholly ineffective in applying and sticking to reasonable fuel tax surcharges,” says Bennett.
“The answer to why an overwhelming number of carriers have not shown solidarity is quite simple – in most instances, they don’t bear the burden of variable costs, their owner/operators do. Rather than ruffle the feathers of the shipper by imposing a reasonable surcharge, the path of lesser resistance is simply to do nothing and allow the owner/operator to absorb the hit.”
The FCA has a weekly recommended fuel surcharge, but Sirgey acknowledges that not all carriers adjust their fuel surcharges on a weekly basis.
“Not all carriers want to change it every week. Some change it on a monthly basis,” he says.
And, Sirgey adds, carriers may not be following the association’s weekly recommended surcharge rates because they have their own policies and calculations for a fuel surcharge.
For the week of Feb. 10, for example, the FCA recommended a 4.7 per cent surcharge for LTL, and 11 per cent for TL.
Bennett of the TFS Group says carriers who don’t have an adequate fuel surcharge program are only hurting themselves in the long term.
“In the long term these carriers suffer through owner/operator turnover, poor performance, added administration and diminished goodwill.”
A good fuel surcharge program helps attract good, loyal O/Os and helps both carriers and O/Os stay in the black, says Bennett.
“In many cases, we’ve observed that a well-managed fuel surcharge program has resulted in a net increase in revenue after all factors are considered.”
Trucking isn’t the only industry being hit because aviation fuel, home heating oil, natural gas and regular gasoline prices have all seen dramatic increases, too.
So carriers and O/Os are just going to have to bite the bullet and deal with the high cost of fuel the best they can because “everyone’s affected,” says CPPI’s Clapp.
In Newfoundland, where diesel fuel runs as high as 86.8 cents per litre, pump prices may come under more scrutiny in a broad review of fuel regulation and pricing issues.
“I can’t say whether it would be a specific issue, but it could come up,” says Michelle Hicks, media liaison for the Petroleum Products Pricing Commission (PPPC).
The commission is conducting a review of fuel regulation and pricing issues in Newfoundland and Labrador.
The commission was meeting with all oil companies in February. It’s expected to complete its review by the beginning of March and then report its findings.
In the meantime, diesel prices – indeed all fuel prices – aren’t expected to come down anytime soon.
Says Clapp, “Is anything going to change in the future? Your crystal ball is as good as mine.”