Fuel Crisis Survival
Skyrocketing fuel costs and a weak economy led to many trucking company failures last year. Prices are even higher now. What can you do to survive?
Contributing to this article:
Deborah Whistler, Editor
Patricia Smith, Senior Editor
Oliver B. Patton, Washington Editor
Steve Sturgess, Senior Editor
Tom Berg, Equipment Editor
John Bendel, Technology Editor
According to industry estimates, a 10-cent increase in the price of diesel fuel will put 1,000 trucking companies out of business. And in the past months, diesel has jumped by as much as a dollar a gallon in some states. Depending on the situation with Iraq, fuel prices may increase even more. It's possible the price of diesel could hit $4 a gallon.
It's even more devastating for smaller carriers and owner-operators. Smaller truck businesses — the largest segment of the industry — typically don't have much bargaining clout when it comes to negotiating fuel prices, and even less with customers when it comes to quickly imposing surcharges or raising rates.
Official Washington would love to make the fuel crisis go away, but the truth is, diesel prices are set by the market and there is not a great deal that government can do.
The current runup in diesel prices was created by a combination of tight oil inventories and uncertainty about supply. Part of the blame rests with the unusually cold winter, said Bob Costello, chief economist at American Trucking Assns. "Oil inventories are 25% lower now than they were this time a year ago," he said.
Just as significant, however, are disruptions in supply from strike-torn Venezuela and anxiety about the pending war in Iraq. The Organization of Petroleum Exporting Countries is trying to calm fears about the Iraq war — "There will be no shortage of oil," said Ali Naimi, the Saudi oil minister. But the risk of a cut-off of oil supplies from the Middle East continues to affect the market.
The government does have tools that can affect prices to some extent. The biggest single lever is the Strategic Petroleum Reserve, which consists of about 600 million barrels of crude oil stored in enormous underground salt caverns along the Gulf Coast in Louisiana and Texas. It was created in 1975 as a first line of defense against an interruption in oil supplies.
Trucking interests, including ATA President Bill Graves, have asked the Bush administration to open the reserve, in the expectation that this additional source of oil would ease pressure on prices. And there is precedent for such a move: President Clinton tapped the reserve in September 2000, a move that probably contributed to a 10-cent-per-gallon price drop that December.
ATA was hoping for a pre-emptive opening of the reserve as prices shot up earlier this year, but that did not happen. As HDT went to press, the Bush administration was holding firm to the policy of not opening the reserve unless there is an energy emergency.
"We do not believe that the reserve's capacity should be employed to adjust prices," Energy Secretary Spencer Abraham told Congress. "We believe that it has to be maintained to deal with energy emergencies when there is simply no supply."
The good news, according to ATA's Costello, is that the administration did stop buying up oil to store in the reserve. "That leaves a little bit more in the market," he said.
Trucking interests have in the past pursued another possible remedy — a mandatory fuel surcharge.
During the 2000 crisis, owner-operators and some truckload carriers lobbied for legislation to create a surcharge, and ensure that the money is passed through to the person who buys the fuel.
There is less emphasis on that this time around, however. According to Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Assn., there is no active surcharge bill in play right now. He attributed this to divisions within the industry: while OOIDA would support a bill, ATA is neutral and the large LTL carriers are opposed.
For carriers whose margins are close to the breaking point, a price spike like this one can be a killer. To survive, you need to have reliable arrangements in place that will allow you to pass on at least some of the higher costs. That, and sufficient reserves to carry you through the tough time. And of course, an ongoing program of fuel-efficient operating practices is essential.
A possible resource for some may be the Small Business Administration, which will lend money to help small companies through tough times.
Loan terms vary, but all require applicants to work with one of the many banks that are certified SBA lenders. Basic information required includes three years of tax returns, a current business plan and a cash flow analysis.
SBA has regional offices, development centers and business assistance offices throughout the country. To find the SBA office nearest you, call the agency's answer desk at (800) 827-5722. The agency's web site is www.sba.gov.
Meanwhile, ATA has alerted the state attorneys general, and the Federal Trade Commission, to the possibility of price gouging by unscrupulous fuel vendors. ATA's Costello said the association has not seen such practices during this crisis, but he claims they have happened in the past.
Adding another wrinkle to the fuel situation is the potential that new lower-emission engines are thirstier than older, less environmentally friendly engines (see sidebar). With even stricter emissions regs on the horizon, the promise that new-technology engines will suffer further degradation in fuel economy is quite likely.
Clearly, the trucking industry will need to consider other means to conserve fuel for the long-term, even if the current fuel crisis passes.
The High Price Of Idling
One of the easiest way to cut fuel consumption is to cut back on idling trucks.
But getting drivers to stop idling is easier said than done. It's almost a cult practice for truckers to leave that diesel humming, whether they need to or not. And many times — especially in extreme weather — they need to.
It takes a concentrated effort on the part of company management to convince drivers to cut the engine. Like any company policy, rules discouraging engine idling will fade away if not enforced consistently.
Consider buying devices like sleeper heaters, inverters or auxiliary power units. Some can pay for themselves quickly, others may never pay off but can boost driver morale considerably.
Drivers who don't learn to shut it down, may be forced to.
Depending on who you talk to, there are anywhere from 18 to 22 states with anti-idling laws on the books.
In Nevada, diesel truck and bus idling is restricted to 15 minutes. St. Louis limits idling to 10 minutes for all but emergency vehicles. Pennsylvania restricts idling to two minutes if the temperature is above 32 degrees.
There are bound to be more as environmental and health groups, buoyed by studies indicating a "possible" cancer link, continue the pressure to reduce diesel exhaust.
But it may be the federal government that finally puts an end to idling — not with laws, but with voluntary initiatives. With marching orders from the Bush Administration's Energy Policy, the U.S. Environmental Protection Agency and Department of Energy are working with DOT and the trucking industry to identify ways to reduce truck idling.
The agencies come armed with numbers. A government funded study released last year by Argonne National Laboratories estimates that the typical over-the-road truck with a sleeper cab idles six hours a day — 10 hours a day in the winter, 4.5 hours daily during the rest of the year — or 1,850 hours a year. Figuring that one hour of idling burns one gallon of fuel, that's 1,850 gallons of fuel. At $1.40 a gallon, that's $2,590 a year.
Argonne calculates that, industrywide, trucks idle away more than 840 million gallons of fuel each year. It also estimates that if all Class 7 and 8 long-haul trucks would use the anti-idling devices available today, the total fuel savings would be as much as 0.6% of all fuel consumed for surface transportation in the U.S.
As for pollution, EPA just finished a diesel idling study with emissions testing and is preparing a paper for the Society of Automotive Engineers. For now, however, the agency's web site says that, on average, an idling truck produces 21 tons of carbon dioxide and 0.3 tons of nitrogen oxides per year. EPA also warns that idling trucks can contribute to "premature mortality, bronchitis, hospital admissions, respiratory symptoms, asthma attacks, work-loss days and minor restricted activity days."
At this point, however, federal officials don't seem to favor outright bans. For one thing, few jurisdictions have the money or manpower to enforce idling restrictions.
"When you start having trouble getting everything done because of shortages in your staffing, you have to prioritize," said Lee Slezak, manager of EPA's Advanced Vehicle Test Authority. "I think these laws tend to fall to the bottom of the list."
Mitch Greenberg, an official with EPA, notes a resurgence of anti-idling laws and enforcement — especially in the northeast — but most efforts are aimed at school bus or vehicles that idle on or near school yards.
"The best solution for school buses is just to turn the engine off," he said. "In most of those cases it's not eight hours of idling, it's half an hour or an hour. But the truck driver needs power to get him through the night."
Thus the focus of both agencies is finding cheaper and environmentally cleaner ways for truckers to do that.
DOE is just finalizing plans for a fleet demonstration project aimed at testing currently available anti-idling devices in several different types of operations. The agency solicited input from organizations such as the American Trucking Assns. and the Owner-Operator Independent Drivers Assn. to help determine what type of information will be most helpful to truck users. Administrators hope to meet at least once with those groups, as well as fleet managers, truck manufacturers and suppliers of idling alternatives before they finalize details.
"The last thing we want to do is go out and convince someone to use a certain device and it doesn't work for them," Slezak said. "We want to make sure that we actually collect the data that fleet managers need to make informed decisions."
Testing could begin soon and will run at least 12 months. "We think there are enough changes in the operating environments of trucks that it is essential to collect a full year's worth of data," he explains. DOE will, however, offer interim reports as data becomes available.
In addition to fuel savings, the DOE demonstration project will look at engine wear and oil change intervals. They also hope to have case studies covering a fairly large percentage of the trucking industry so truck operators can choose data that most closely matches their operations.
EPA has split its work into two categories: on-board devices, like auxiliary heaters and generator sets, and truckstop electrification.
The agency just created a $200,000 grant that will be awarded to a non-profit organization to demonstrate idle reduction technologies in fleets. "We want to showcase the fact that these technologies can save fuel," said EPA's Greenberg. Participating fleets will, of course, be required to document idle reduction and cost savings. They'll also be required to reinvest that savings in more technology.
A separate initiative, the Green Transport Program, will recognize fleet owners who sign up for emissions reduction technology or other programs, including idle reduction strategies. Greenberg describes this as a market-driven program. Participants who meet or exceed performance goals will be eligible to use special labels or identifiers in advertising and sales promotion material. The idea, he says, is to get shippers to pressure carriers — and carriers to pressure their own vendors — to do things that will reduce emissions.
EPA and DOT are working together on an Interstate Corridors Program aimed at creating more places where truckers can "plug in" for the night. "There are a lot of independent truckers and small companies that will never be able to afford a $3,000 auxiliary power unit," Greenberg explained. The alternative, therefore, is more power sources at places where truckers stop.
He admits that it's an expensive proposition and they're hoping to find funding through partnerships with power companies, energy suppliers, government, truckstops and trucking fleets. One source that has already been tapped is the federal Congestion Mitigation and Air Quality program (CMAQ), designed to finance transportation-related projects that contribute to attaining or maintain national ambient air quality standards. It was recently announced that CMAQ would help fund the installation of 120 parking spaces equipped with IdleAire technology at a Petro Stopping Center in Tennessee.
Various government agencies and private concerns are also working on continued development of new technologies. For instance, California's South Coast Air Quality Management District recently approved a three-year project to develop fuel cells aimed at reducing air pollution from idling trucks. The Institute of Transportation Studies at UC Davis will develop the fuel cells with a $300,000 grant from AQMD and another $900,000 from the California Air Resources Board, the U.S. Dept. of Energy, Carrier Transicold and ATA.
Both Slezak and Greenberg insist that their agencies have no plans to mandate idle-reduction technologies. "We're not in this to try to push the technology onto somebody," Slezak insisted. "We're trying to demonstrate which technologies work the best in which application so the fleet managers can make their own decisions. If it turns out that idle-reduction devices don't work for a particular fleet, then I will honestly tell that fleet manager 'if it doesn't work for you, by all means don't get it.'"
"We're right on the verge of some major progress," said Greenberg. "We're looking for trucking companies to partner with EPA. We'd like to see some fleets start to use some of these technologies and we will recognize those companies that come forward."
You can find out more about EPA's programs, including a list of available technologies, from its web site, www.epa.gov/OTAQ/retrofit. The DOE programs, including the Argonne studies and a cost calculator for truck operators, can be found at www.trucks.doe.gov (choose "Idling Reduction" on the shortcuts menu.)
Fuel Crisis continued...
