Editorial: Rising Fuel Prices Depress Trucking’s Bottom Lines

For months, analysts have been predicting the imminent end of the run-up in fuel prices, certain that oil-exporting nations would end their manipulation of petroleum supplies after prices recovered from historic lows in the early part of the year. And they’ve been wrong. Last week, officials from the Organization of the Petroleum Exporting Countries said they were committed to maintaining production restraints until at least March.

Now the harvest of higher prices is beginning to trickle in, and it’s bad news for trucking and trucking stocks: FDX Corp. and J.B. Hunt Transport Services both warned investors last week that earnings have been hurt by higher fuel prices, and FDX said future company performance would also suffer.

FDX said the fuel increases have cost it $27 million in the company’s first quarter, and that the higher prices could mean a $150 million hit to its bottom line for the full year. Hunt said the fuel jump will cause it to post quarterly earnings of 14 to 18 cents, around half of what it earned a year earlier.

These days, national diesel fuel price averages are almost 20 cents a gallon higher than they were one year ago, or almost 29% from the February lows, a major jump in an industry with notoriously small profit margins. The current national average for diesel is the highest it’s been since early March, 1997, and things may well get worse before they get better.

One stock analyst for Banc of America Securities last week said that fuel prices would have to decline 6.3% in the next quarter for trucking companies to maintain their year-over-year earnings increases. And that isn’t likely to occur.

It’s fortunate that these fuel woes are occurring at a time when the freight market is strong, rates are rising and capacity is in line with demand. The run-up reinforces the industry’s need to increase fuel efficiency and to maintain firm control over costs.