MT: Thinking differently going forward has been a central theme of our discussion so far. Keeping that in mind, I want to tackle the issue of fuel pricing. If we look at how the rise in fuel pricing w...
MT: Thinking differently going forward has been a central theme of our discussion so far. Keeping that in mind, I want to tackle the issue of fuel pricing. If we look at how the rise in fuel pricing was handled the last couple of years and look ahead to the future when prices will likely rise again, is there anything we’ve learned that may cause us to want to do things differently?
Robert: Right now, the price of fuel is down, but even if you go back a few months ago, I felt the price couldn’t have been that high because you saw people on Hwy 401 doing 115-120 km/h. And yet they are going back to the shipper and saying you need to adjust my fuel surcharge. It’s a change in mentality that’s required. You need to start by managing the best you can on your side first and then go to the shipper and see if they can help you out. Over the years, we and other serious carriers have invested heavily on devices to save fuel, such as gen sets and aerodynamics, trailer skirting, reducing speed, etc. What more can we do? I think the technology will help us get there, but we will need money from the government to help us out. We have limited help right now from the government in terms of subsidies and incentives.
MT: If we look at the trucking industry overall, did motor carriers do enough to invest in fuel saving technologies over the past couple of years or, and I’m not suggesting that we should not have fuel surcharges, have they been used as a crutch to an extent?
Armour: You have to remember that during the past two engine revisions we lost fuel mileage in the sake of making trucks cleaner. So buying new trucks actually worked against you and we had to find other ways to save fuel. I think our industry has done a lot. Can we do a little more? Of course. But you have to weigh the technology against the cost. One of the things that comes up once in a while is why don’t you buy futures? We spent a considerable amount of time looking at that and we did used to do it years ago when you could predict fuel pricing and you could predict when to buy and when not to buy. But with the volatility in the fuel situation today, just imagine where any one of us in this room would be today had we bothered to buy futures at $125 a barrel, especially when we were being told it was going to go to $200 a barrel. It’s safe to say most carriers have gotten away from this strategy because it is so risky. Nobody would have thought a few months ago that fuel would have ended up at today’s prices.
Any of the carriers that were serious about the business had already implemented speed control in their trucks and carriers like Robert have certainly been leaders in testing different fuel saving devices. I don’t know what else we can do about fuel. The oil companies hold all the cards.
MT: We’re talking about having idling controls, speed controls -does it surprise you that at least 30% of motor carriers, at least according to our research, don’t support speed limiter legislation?
Snobel: It is very surprising. When you look at an 800 km trip from here to Chicago with a truck limited to 100 km/h, it is going to take eight hours to get there. If the driver goes 110 km, he is going to take the chance of getting a speeding ticket and save maybe 20 minutes. So what does he really save? Nothing. And with the fuel wasted, he’s cost the company money. With drivers you have to educate, educate, educate. Teach them to slow down; teach them why they should slow down. We are not monitoring fuel consumption to slap them on the wrist, we are trying to show them how by going 100 km/h rather than 110 km/h you save this much money, at Christmas you would have got this much of a bonus instead of no bonus and you will be helping us stay in business this year and next year and the year after. The other issue is that there is nowhere for drivers to stop and rest. Go from Montreal to Windsor, how many truck stops do you have? That costs fuel, that costs money and it wastes time.
Also, we really have to get the government more involved so they can help the industry. We’re not looking for handouts; we’re looking for different ideas.
MT: Warren, if we look at it from a shipper’s point of view, do you see shippers becoming more vigilant in the future in their carrier negotiations over fuel surcharges? Do you see shippers asking carriers exactly what they’re doing to improve their fuel economy?
Sarafinchan: From a shipper’s point of view, we need to be smart about how we are utilizing the assets. We need to be finding efficient routing. We need to be leveraging some of the new technology tools that are available. Equally, some in the motor carrier industry have done a lot to improve fuel utilization, but I don’t think that across the whole industry we’ve done enough. And, frankly, when we go into the next round of fuel price increases, we need to stretch that much further from a technology and assets point of view in how we manage drivers and in how we look for collaborative ways to drive such costs out. The shareholders and customers are expecting more.
Goodwill: Some of the shippers are getting a lot more involved in the issue of energy conservation. What I am seeing is them specifically asking carriers about their energy and fuel conservation programs. They are asking carriers what they are getting in miles per gallon and they expect the carrier to know that. It looks bad on the carrier when their people can’t speak to that.
And we have to talk about this fuel surcharge thing. While I applaud what is being done on the trucking side, I think where we fall down a little bit is on the communication and transparency of the discussion with the shipper. You have carriers charging a 51% surcharge and still moaning and groaning about not making enough money and then you have carriers that take the FCA surcharge and drop it by 20%, 30% or 40%. That creates a credibility gap with shippers. We understand why truckers need fuel surcharges but there has to be more transparency. What do carriers really need? I think most shippers are willing to listen if the carrier is doing all the right things. Otherwise why should a shipper pay for a carrier that doesn’t have it together?
Armour: The fuel surcharge was at a level (of the base rate) where it was ridiculous, it was never intended to be there. But we have tried as a carrier to go to customers and say let’s set that bar at a more realistic level, and if fuel went way down then we will adjust your base price way down. I have no issue with doing that. But there seems to be a real reluctance to do that. There almost seems to be two departments with customers. There is the pricing department and then somebody else who pays the fuel surcharge. We’re not looking to increase anything; all we want is to improve a ridiculous situation. But we’ve had very poor success and have almost given up on it. I wonder why there is so much resistance to that. Wouldn’t that be a better way to do this?
Venslovaitis: I’m all for it.
Snobel: Anyone who ships by air freight knows that this is the fuel surcharge; pay it or your freight sits. Or with ocean freight, you have the bunker surcharge and if you don’t want to pay it, your freight sits. It’s that simple. So why are customers reluctant to pay the fuel surcharge for truck freight? Because you have every Tom, Dick and Harry running up and down the road and not charging the proper amount. We are our own worst enemies.
Goodwill: That’s exactly what the problem is. If everybody said we are going to charge X% of the FCA fuel surcharge and let’s duke it out on the freight rate portion, that would be fine. But the fact is carriers do not all have a strong backbone and there is not a unified camp on surcharges and that instills uncertainty and a lack of confidence on behalf of the shippers. The carriers who are going to survive are the ones that know their costs.
Venslovaitis: We had the fuel surcharge fight six years ago and we came to an agreement on the piece that needs to be for fuel, and the pieces for infrastructure and for drivers. I think going forward from there, fuel hasn’t really been an issue in any of our negotiations. Now we are looking at what’s the base rate needed and I have a spreadsheet with 47 lines on it for each different lane, each different carrier, each different situation. If there is an issue, I expect our carriers to come back and say what we agreed to back then has changed and tell me their story. Unfortunately not everybody does that.
Goodwill: Of course, it’s not always a level playing field because the railways come into the picture and are asking the shipper why he is using trucking when rail has a lower fuel surcharge. We have all these puts and takes in the market.
Venslovaitis: It’s becomes a negotiating tool that doesn’t reflect real costs in some situations I think.
Snobel: That’s a key point you bring up. A lot of carriers go in and use the fuel surcharge as a rate increase. And you have to separate the two. Fuel has the fuel surcharge and here is your base rate. And if you want a rate increase, you should say you want a rate increase. If you want a fuel surcharge increase, establish your base, talk with your customers and tell them what you need, and that’s it.
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