March 31, 2008 7:45 AM, EDT

Diesel Tops Previous High

Sixth Straight Gain Pushes Average to $3.989

By Michael G. Malloy, Staff Reporter
This story appears in the March 31 print edition of Transport Topics.
The average retail price of U.S. diesel rose another 1.5 cents a gallon to $3.989 last week, extending to five the string of record-high fuel prices recorded by the Department of Energy’s weekly report.
Diesel has jumped 70.9 cents the past six weeks, topping the cumulative 56-cent gain in the six weeks following Hurricane Katrina, which hit Gulf Coast refineries just before Labor Day 2005.
The rapid price rise led American Trucking Associations to label the fuel situation “a crisis.”
“We are concerned about fuel’s direct impact on our industry and also its effects on the nation’s economy,” said ATA President Bill Graves. “The industry is doing its part to conserve fuel, but we need help.”
The diesel average is now $1.313 a gallon higher than the comparable week last year, raising trucking’s costs by $958 million, because the industry uses about 730 million gallons per week.
DOE also said last week the average regular gasoline price fell 2.5 cents to $3.259 a gallon, the first decline in six weeks. Gasoline was 64.9 cents higher than the comparable week of last year.
With diesel already above $4 a gallon in some portions of the country, there were widespread reports last week that prices were threatening the viability of the trucking industry.
“We’re going to lose more owner-operators, who carry the backbone of the nation’s food supply” said Brent Redmond, owner of refrigerated hauler Brent Redmond Transportation Inc. of Hollister, Calif., which uses a mix of independent and company drivers.
The high prices were putting extra pressure on truckers in California, where state and federal regulations, such as unique fuel formulations, were reducing trucks’ mileage and keeping prices high.
Pump prices in California were $4.10 last week, Redmond said. He added that he was holding a firm line on fuel surcharges, which he said was critical to keeping his owner-operators afloat, even though he said some of his competitors were accepting lower payments.
“Some customers have said they want to lower surcharges, but we’ve had to say ‘no,’ ” Redmond said. “Some of our competition has taken the business and taken a loss, but we’ve taken a position that we’re going to walk away from the business and maybe lose a customer or two” in order to stay viable through the year.
One transportation industry analyst wrote last week that the record prices were threatening to put many marginal trucking companies out of business.
Stifel, Nicolaus & Co. analyst John Larkin wrote that the steep increases are making cheap diesel fuel “a thing of the past,” and he noted that not all shippers were paying higher fuel surcharges.
Larkin said the steep prices were “threatening the financial viability of many truckload carriers.” The high fuel costs could cause “capacity . . . to leave the industry in droves, as many small carriers can no longer turn a profit.”
Truckload carrier Covenant Transportation Group, Chattanooga, Tenn., said March 27 it would lose 40 cents to 50 cents a share in the first quarter, citing high fuel prices. It also said it may boost surcharges and freight rates in the second quarter.
“We will be working with our customers over the next few quarters, with the intent of recovering an additional portion of the added fuel costs through additional fuel surcharge recovery or increased freight rates,” said Chief Operating Officer Joey Hogan.
Meanwhile, ATA issued letters to several federal agencies, including the Energy and Transportation departments, “requesting that immediate steps be taken to address this crisis situation.”
Some of the steps ATA called for included:
• Releasing oil from the Strategic Petroleum Reserve.
• Establishing a national diesel fuel standard.
• Requiring speed limiters set for 68 mph or lower on all new trucks and setting a speed limit of 65 mph.

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