All news
High fuel prices still a problem
10/29/2008
Despite a precipitous decline in the price of diesel over the last four
months – from a national average of $4.76 per gallon in July to $3.28
this week – fuel costs remain a big burden on the bottom line for many
fleets.
“Declining diesel fuel prices improved our ability to
more adequately collect fuel surcharges,” said Kevin Knight, chairman
& CEO of Phoenix, AZ-based Knight Transportation, in the TL
carrier’s third quarter earnings statement.
“But despite the
decline in fuel prices, the U.S. Department of Energy national average
diesel fuel price for the [third] quarter of $4.34 increased $1.44
above the third quarter of 2007 average of $2.90,” he said. “We
continue to focus on improving the fuel efficiency of our fleet through
reduced empty miles, decreased idle time, improved fuel purchasing, and
controlling out-of-route miles.”
Heartland Express said it
experienced a 46.5% increase in average fuel costs per gallon in the
third quarter of 2008 compared to the third quarter last year, with its
cost per gallon averaging $4.03 compared to $2.75 in the same quarter
in 2007. For the first nine months of 2008, Heartland experienced a
50.2% increase in average fuel costs, with its cost per gallon
averaging $3.86 versus $2.57 over the same period last year.
As
a result, the TL carrier said it continues to stress its fuel cost
controlling initiatives, such as taking advantage of bulk purchases
where it is cost effective to do so when compared to over-the-road
purchases, reducing tractor idle time and controlling out-of-route
non-billable miles.
Werner Enterprises noted in its third
quarter earnings statement that, over the past several years, the
truckload industry has not recovered all of the cost of rising fuel
prices through fuel surcharge programs. Each year in the past four
years, rising fuel costs (net of fuel surcharge collections) had a
negative impact on its operating income when compared to the previous
year, with the total negative impact Werner’s operating income due to
fuel expense, from 2004 to 2007, totaling $61 million.
“When
fuel prices rise rapidly, there is a negative earnings lag effect that
occurs because the cost of fuel rises immediately and the market
indexes that are used to determine fuel surcharges increase at a slower
pace,” the carrier said in its earnings statement. “As a result, during
these rising fuel price periods, the negative impact of fuel on the
company’s financial results is more significant.”
Werner noted
that the fuel price trend in third quarter 2008 was unusual, as fuel
prices declined for most weeks during the quarter. In a period of
declining fuel prices, the company said it generally experiences a
temporary favorable earnings lag effect, since fuel costs decline at a
faster pace than the market indexes used to determine fuel surcharge
collections. This occurred during third quarter this year, enabling
Werner to temporarily have lower net fuel expense, helping offset
uncompensated fuel costs such as truck idling, empty miles, and
out-of-route miles.
Yet all of those uncompensated fuel costs
were higher in third quarter this year than the third quarter of 2007
due to the higher average fuel prices. “If fuel prices remain stable
going forward, the company does not expect the temporary favorable
trend to continue,” the carrier noted.
Sean Kilcarr, senior editor
Fleet Owner, Sean Kilcarr, senior editor, http://fleetowner.com/management/high_diesel_fuel_prices_1029/