Summary
Increasingly, owner-operators are parking their trucks rather than chasing scant freight at a time when diesel prices are over $4 a gallon in some parts of the United States. Diesel costs -- which have tripled under the Bush administration -- are finally taking a toll on U.S. independent truckers. Truck tonnage was off 1.5 percent last year, a severe enough economic climate notwithstanding the record costs of diesel. While large trucking companies can recoup fuel spikes through surcharges -- which have reached nearly 50 percent at some truckload carriers -- independents are at the whim of the customer. Some pay, some don't. The impact of all this is still being felt throughout the trucking industry and the U.S. economy, and it's unclear who will actually benefit.
Analysis
It costs $550 to partially fill an 18-wheeler with diesel fuel these days. Yes, $550 gets you half a tankful.
The U.S. trucking industry will spend a record $135 billion on fuel this year, based on current forecasts. That's according to the American Trucking Associations, trade group for the large trucking companies.
Those are the guys who have it lucky. They can more or less pass on their fuel costs through a sliding scale of fuel surcharges, which helps them recoup nearly all their fuel costs.
Not so lucky are the legion of independent drivers, who are at the mercy of tight-fisted customers as to whether they will get their fuel costs back in revenue.
Independent drivers are a difficult lot to gauge. That's why they are called independents. There really isn't a hard number of them, although they generally are estimated to consist of perhaps 1.5 million to 2 million drivers.
That estimate is in good times. Not now. Increasingly, owner-operators either by choice or by financial hardship are parking their trucks rather than pay $4 a gallon for diesel.
Hard numbers are hard to come by, but it's a safe assumption that as many as 10 percent of independents are sitting on the sidelines now. If you assume 1.5 million owner-operators, that's 150,000 trucks out of commission. It's not an insignificant number.
ATA chief economist Bob Costello predicts more trucking company failures, and independents leaving the market. "It's only going to get worse," Costello is quoted in this New York Times article.
While that's a tragedy for these independents and their families, there is a brighter side. In the macro sense, this does mean capacity is exiting the market place. This should be good for large TL carriers such as Swift, Schneider National, Werner Enterprises and J.B. Hunt, among others.
Trucking rates have been stuck in neutral basically since this downturn started in August of 2006. There is some hope that the second half of this year will start to see a rebound in freight demand. If that happens -- and it's a big if, in my book -- the combination of less capacity and more freight should be better pricing for the survivors.
That is, if there are any survivors. At $4 a gallon diesel, that is not an unreasonable assumption.
