February's record spike in fuel prices is half a year in the past, but Canada's truckers aren't as insulated from high fuel prices as they might want to be.At press time (in August), the retail price ...
February’s record spike in fuel prices is half a year in the past, but Canada’s truckers aren’t as insulated from high fuel prices as they might want to be.
At press time (in August), the retail price of a litre of diesel in Toronto stood at about 63 cents. That is just eight cents off the average price per litre in Ontario for the month of February, which clocked in at 71 cents. Of course, truckers will recall the spike in fuel prices that month that pushed the cost per litre as high as 88 cents in Ontario and 89 cents in Quebec. And many will also have no trouble remembering standing in the cold at a blockade or a rally, or driving in a convoy to protest those prices.
As Truck News has reported in past issues, several petroleum industry analysts believe that chronically low inventory levels of diesel fuel across North America could lead to shortages this coming winter, perhaps pushing prices above those seen last February.
Luckily, the industry seems to be in better shape to deal with fluctuations in diesel prices.
“I think the carrier community is certainly more disciplined now in terms of getting fuel surcharges put in place,” says David Bradley, president of the Ontario Trucking Association and CEO of the Canadian Trucking Alliance. A quick look through the Truck News Careers ads suggests Bradley is right. Prior to last February, ads for owner/operators offered the standard perks: all miles paid, tolls paid, on-site garage, benefit package, etc. Since February, and all the mayhem in the trucking industry that came with it, the majority now include the promise of “fuel surcharge paid”. When it comes to attracting experienced owner/operators, protection against soaring fuel prices is now clearly a big selling point.
“I think most carriers have been working with their owner/operators and making sure the owner/operators are looked after,” Bradley says. “For the most part, I think there is some protection there now.”
It’s still the individual owner/operator, however, who is most vulnerable to sudden increases.
“If I was an owner/operator, I would certainly be opening the lines of communication with my carrier and making sure there were measures in place to protect me from big jumps in the cost of fuel,” he adds.
Most carriers say they have managed to get their customers to agree to some kind of fuel surcharge arrangements – if not on existing contracts, then certainly on new ones.
“The issue of high fuel prices has been around long enough now that it’s not a strange item to bring up when you are negotiating with a customer,” says Jeff Preis, director of marketing for Winnipeg-based Bison Transport. “After last fall and winter, we were forced to deal with it, and deal with it rapidly. Now fuel surcharges are attached to all our pricing packages.”
Preis says Bison uses a sliding scale for its surcharge that is designed to respond to both temporary spikes and decreases in the price of fuel.
Trans-X, meanwhile, has had a fuel surcharge program in place for several years, says Joe Trigiani, manager of the company’s Brampton, Ont. terminal. But it also implemented a price cap on yard fuel on Feb. 1., just in time for the spike.
“As the price kept going up and up, we knew we had to do something, so we implemented the cap as part of our pay structure,” Trigiani explains. “As long as the drivers purchase the fuel from us, we eat anything above the cap.”
Like Bison, Trans-X also employs a fuel surcharge that works on a sliding scale. For every five-cent-per-litre increase in the price of fuel, the surcharge jumps up a percentage point. That way, says Trigiani, the customer doesn’t absorb everything: “Rising fuel prices still affect our bottom line; we absorb some of the cost and the customer absorbs some of it.”
Debbie Caldwell , the owner of Ottawa-based Goldie Mohr, a company that specializes in hauling aggregates and moving heavy equipment, has tried to make allowances for higher fuel costs by inching up rates on new contracts, but says her profit margin would still suffer if the price of fuel rises to last winter’s levels.
“We increased prices on some equipment related strictly to the price of fuel, and no one had a problem with that,” Caldwell says. “But contracts that are already in place we can’t do anything about. We are locked into a price and just have to bite the bullet if fuel goes up.”
Another carrier that could see its profit margin suffer in the event of a sudden price spike is Mackie Transport of Oshawa, Ont. With many of its owner/operators on the ropes last February, Mackie managed to secure a fuel surcharge from its customers in the automotive industry. Rather than being tied to the price of fuel, however, Mackie’s surcharge is a fixed percentage that is reviewed monthly. But Mackie vice-president Norm Mackie believes it is time for other players to become involved.
“With the economy as strong as it is right now, it would be nice to see the federal and provincial governments come through with some relief on fuel taxes,” Mackie says.
And now, most shippers look on surcharges as just another cost of doing business.
“I won’t deny that when the carriers started raising the issue of fuel surcharges there were some heated discussions,” says Bob Armstrong, president of the 600-member Canadian Importers and Exporters Association. “But I think both sides understand the issues better now. “
Armstrong says shippers were just concerned that a temporary blip in the petroleum markets was being used to disguise a rate increase.
” Most shippers, especially the big ones, expect contracts to be honored. And we believe that a rate increase has to be negotiated at the contract stage. No one likes price hikes, but shippers are willing to be fair. No one expects the carriers or the truckers to go broke,” Armstrong says.
The feeling is the same among the 200 corporate members of the Canadian Industrial Transportation Association, according to managing director Lisa MacGillivray. “Shippers understand that the price of fuel is high at the moment, but they aren’t paying without question,” she says. MacGillivray says some people in the industry continue to call for an across-the-board rate increase. She adds that shippers often have a much harder time selling a price increase to their customers, and they are also concerned about whether or not fuel surcharges are actually getting through to the people who need the help the most – individual owner/operators.
But MacGillivray believes companies and everyone involved pay closer attention to the petroleum markets.
“Companies are certainly more prepared, governments are more prepared,” she says. “I hope the owner/operator community is more prepared as well.” n
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