July 27, 2004
By NELSON ANTOSH
Houston Chronicle
THE nation's trucks are rolling as the economy shifts into higher gear.
Nowhere is that growth more obvious than at the Flying J Travel Plaza on Interstate 45 north of Houston, where about 40 percent more truck traffic is rolling in than a year earlier.
"It's just the upturn, I think," said manager Britt Jones.
Truckers at the big truck stop said they are always among the first to see it when the economy goes up, and the first to suffer when the economy falters. Jones noticed that the volume at the Flying J started to take off around March.
In the process, the trucks are burning up more of the increasingly expensive diesel fuel. The resulting high demand has pushed the price of diesel to within 3 cents of an all-time high, a record that is expected to be easily surpassed by late fall.
With demand growing and supplies limited, the nationwide average price for on-highway diesel fuel is about $1.75 a gallon, not far from the $1.77 record set in March 2003, according to the Department of Energy's Energy Information Administration.
The nationwide average price is more than 21 percent higher than at this time last year. Prices have been rising for more than a year, leading to a steady series of surcharges by truckers.
This is one of the many ways that energy prices ripple through the economy. Higher fuel costs also affect everyone from SUV drivers to chemical makers.
The outlook for diesel fuel prices isn't as precarious as it had been a couple of weeks ago because supplies of crude oil have risen.
But the market still points upward, according to Tom Kloza, chief economist for the Oil Price Information Service in Lakewood, N.J.
Seasonal price changes
Prices typically rise for diesel in the fall and winter months when there's competition with heating oil users, and speculators are betting that will happen again.
There are other factors as well.
Some in the commodity markets are concerned diesel supply in Europe will tighten up early next year, said Ron Planting, an economist for the American Petroleum Association.
Diesel fuel prices will pass gasoline in cost within 90 days, Kloza predicts. Before it is all over, the existing record price for diesel will be "just demolished," he said.
Fuel is typically the second-highest expense for truckers, said American Trucking Associations economist Tabio Headley in Alexandria, Va.
Trucks burn so much fuel that even a 1 cent per gallon increase, annualized over a year, costs the industry an extra $300 million. Headley says the surcharges borne by customers mitigate but don't entirely cover the added cost of fuel, so trucking companies are trying to hold down costs whenever they can by searching for the best price.
Others show little gain
The TA TravelCenters of America location on Interstate 10 in Baytown may be feeling that effort to hold down costs.
"As far as what we sell in diesel, we have not seen a huge increase in demand. That doesn't mean it doesn't exist," said Dennis Millazzo, general manager of the truck stop. Millazzo said other parts of the chain may be doing better.
"Big companies go to the cheapest, and we are not necessarily the cheapest fuel around. There are computers in the trucks, and they will re-route drivers to the cheaper fuel. If they see it 1 cent cheaper five miles away, they will route the truck there," Millazzo said.
Utah-based Flying J is thought to have some cost advantages because it has its own exploration and production, refining, transportation, and marketing.
The real gains in cargo hauled falls somewhere between the increase at Flying J and the flat results at TA.
The tonnage of freight hauled by trucks nationally hit a record in April, according to Headley of the trucking association.
The tonnage was off a bit in May but was still the second highest on record.
"Year-to-date truck tonnage is up a solid 6.4 percent. It is a very strong number," Headley said.
Meanwhile the weekly estimates on demand for diesel fuel have been wild, with some weeks showing gains of 27 percent over a year earlier. Experts say these short-term numbers are not a reliable gauge of the long-term trend, and diesel is lumped in with similar fuels like heating oil and jet fuel.
Planting, the American Petroleum Association economist, said a more realistic estimate of the growth in demand for diesel is the January through June average, up 4.8 percent.
In terms of energy use, 4.8 percent is a big number, said Planting, who pointed out it is nearly double the 2.5 percent demand growth for gasoline.
Despite costs, earnings up
The earnings of some trucking companies indicate they are successfully dealing with higher fuel costs. Swift Transportation, one of the largest truck lines in the country, last week reported an 80 percent increase in second-quarter profit from a year earlier.
Swift said its trucks hauled loads over 418 million miles during its recently completed quarter, up nearly 12 percent from a year earlier, although some of that increase resulted from an acquisition. Fuel surcharges added $40 million to its revenue, up from $23 million a year ago.
J.B. Hunt Transport Services, another large carrier, on July 15 reported both record-high revenue and profit for the second quarter, with profit per share up 77 percent.
A shortage of drivers
But so much freight is being hauled that it has created a shortage of drivers.
Even though Hunt expects to sustain its earnings margins, "growth in the truckload industry is at a virtual standstill until additional truck drivers are attracted into the industry," Hunt President and CEO Kirk Thompson said in a prepared statement.
Yellow Roadway, the biggest trucking company, also reported soaring results.
In a different tactic, food service giant Sysco, based in Houston, tries to keep the driving down by staying close to the customer, building more locations so it doesn't have to drive so far.
During the quarter that ended March 30, the miles driven were up about 3 percent, said a spokeswoman.
For a shipper like Cooper Industries, the freight rates are little changed because of agreements already in place, but the fuel surcharges seem to be coming a little more regularly and a little steeper, said spokesman John Breed.
The Houston manufacturer of electrical products, tools and hardware has agreements with a range of carriers because it ships everything from pea-sized fuses to transformers so large they must be carried on flatbed trucks.
Costs are largely passed on to Cooper's customers. What can't be passed on, the company hopes to make up somewhere else, Breed said.
http://www.chron.com/cs/CDA/ssistory.mpl/business/2703086