Wednesday, April 20, 2005

Effect of Fuel Prices on Car Haulers

The other day I was talking to one of my customers (I work at Autohauler Supply), and we were talking about the price of fuel. He said he's hearing that it may get above $3 per gallon, and that it might even hit the $4 mark this summer. It's hard to believe the government would stand by and let the entire transportation industry take a hit like that. Still, there's not a hell of a lot they could do. There's the strategic oil reserve. There's also the tax policy. Congress could give transportation companies tax credits to offset losses suffered due to fuel price spikes. They could also start tapping the strategic oil reserve to try and dampen the price spikes.

One of the biggest problems, however, is demand. With China's economy growing in double digits-- most of which is in fuel-intensive manufacturing, the oil producers of the world have little extra capacity. OPEC recently asserted that they would increase production-- and the price for oil futures shot up! Analysts said that the traders have come to believe that OPEC no longer has the ability to control the pricing of oil. In the past, if the price of oil went up too far, too fast, OPEC had only to announce that they were raising the production ceiling, and prices settled back down. (Strangely enough, OPEC doesn't want the price of oil to get too high, because if it goes past certain price-points, it then becomes cost-effective to develop alternative sources of energy.)

What does this mean for the auto hauling industry?

Well, for one thing, more fuel-efficient cars to transport from the ports to the dealers, and more sport utility vehicles to transport from the dealers to the auctions. (So it looks like the industry still has to worry about weight and height fines from the D.O.T.)

For another, it may mean a reverse in the downward pressure on load pricing. You can't have your costs go up out of sight and your revenue go down indefinitely. Eventually "something's gotta give".

Unfortunately, the effect of increasing fuel cost and decreasing load price may make it unfeasible to stay in the business. Owner-operators and small fleets of auto haulers need to find a profitable niche-- either that, or a way to pass on increased fuel costs.

One thing we know about supply and demand is that over time, they balance each other out. If load price is going down because there is an "over-supply" of auto haulers competing for the business, eventually load prices will get down so low that it won't make sense for some people to stay in the business. Once enough people decide to trade their auto hauler trailer for a reefer or flatbed, the price of loads will start going up. That's the harsh reality.


H.A. said...

Fuel prices, slow paying brokers, low paying brokers, the transporters that take the low paying loads, IFTA taxes, too low speed limits for trucks and outrageous tolls - all interesting topics at the truck stops. The most interesting topic lately is some serious talk of a nationwide trucker strike. Just, no one seems to be organizing it. Seems that a state by state strike would be easier to orchestrate. Sounds like states would be targeted for specific issues i.e. "Cali" for their 55mph for trucks, 75 for cars. Other issues like IFTA, it should be banned. If companies didn't have to pay IFTA, they could pay their drivers more. Owner-Ops would put more in their pockets. Interesting stuff. Drivers, Owner-Ops, Companies should starting talking and find out whats really going on out their and work to fix it.

Tim Hudson said...

Your original post is as true today as it was 6 months ago. Fuel has begun to come down but we will never see it where it was 2 years ago. The past talk of a strike was just that talk. Truckers in the US will fight an uphill battle. Too many operators will low ball their prices just to get the work. There is very little loyalty among truckers in general. Auto hauling has gotten even tougher brokers have increased their prices but don't seem to be passing it on to the truck. Its frustrating.