Fuel Prices and Trucking; A Reality Check On What Drives America
May 22nd, 2008
It appears we are having a terrible situation with the diesel fuel prices in the US. It is affecting everything, since everything we buy is shipped by train or truck and most of the times both. We have artificial fuel price manipulation and large trucking companies operating at less than 3% margins. We have seen 100s of medium size trucking companies file bankruptcy and 1000s of small companies file as well between 1999 and 2002 and we appear to be headed for another round here in 2005. This is causing problems in the used truck sales market. We have noticed this affect with used trucks on this market it is affecting new truck sales right after several major mergers. There have been lay offs at all large trucking company manufacturers. Employees from Volvo, Peterbuilt, Daimler Chrysler who have been laid off, some have hired back a few due to the emissions rules and need for cleaner trucks and also trucks which are more efficient. The efficiency saved at these fuel prices will nearly pay the additional costs of the payments and truck manufacturers intend to capitalize on that fact.
Fuel prices are a disaster in CA and there is a mandatory diesel engine emissions statue for vehicles over 14,500 GVW. The EPA laws are also causing underground tanks to be continually dug up everywhere to protect the ground water, all these things combined are causing huge issues on top of the already high diesel prices and insane government add on taxes. Oregon State has now decided to induce as well; any truck with no OR plates will be charged extra tax for fuel. Oregon is trying to keep road tax money due to a recent law passing to keep registration fees low. Consumers believed they would save money by low registration, now it is simply added to diesel fuel, which affects everything you buy and leads us into recession. This is a big tax on all diesel sales of trucks. Washington State; same thing; some highest prices in the Nation are now in the west. Even ID, AZ and NV are raising prices but keeping them just under WA, OR and CA. Many truck stops in NV, and AZ even though just over the CA border are keeping inline with just under a nickel per gallon less. Big saving for trucks with 200 gallons of fuel capacity. So now the truck stops in NV, AZ are crowded. And the ones in NM, TX, KS, OK insane where fuel prices are a good 10 to 20 cents per each gallon cheaper. Truck stops in San Bernardino, LAs main distribution hub are busy, but are not selling much fuel, as trucking companies and drivers are only buying enough to make it out of the state where they can fill up at lower prices. In NV and AZ where fuel does not get taxed as much and wholesale prices are lower but prices only 5 cents less. Diesel fuel Sales and distributors are making insanely high margins, or at least a lot more than normal. Noticed that where most of the people live, such as near water (great lakes and Ocean) that is where the fuel is more expensive? This is causing consumers to be damaged in that the cost of everything goes up.
In 2000 trucking companies all started raising prices 5%. And then another increase eight to ten months ago. We have not seen a fair price for fuel in UT, MT, WY, CO either yet we should have. The railroad industry is fairing only a little better able to import their own fuel cars to the locations they need to fill at and buy at a bulk price where it is cheaper. After huge consolidations and soon to be more in the rail industry with Canadian Rail Companies. We see problems here too. Especially recently when the Railroads were shut down due to freezing of switchers and safety devices needed for operations. We think we maybe able to realize a great market in these venues in the future.
When trucks and trains stop, America Stops too. Most grocery stores and Major Retailers operate on a real time basis, meaning that Inventories of the past and big warehouses are not needed to the same degree as before. This is what the new economy is bringing. It means lower prices to consumers due to inventories being less and less cost needed to store goods for any amount of time. It also means foreign trade zones and areas where there are no inventory taxes such as NV will not be as significant as before, but still needed to compete in the fast paced World. Those foreign trade zones, which were decreed after many of the BRAC military base closures have a one ups man ship on those other areas with warehousing incentives. Places such as Columbus OH and Mathers AFB in Sacramento CA. Of course there are over 400 of these foreign trade zones in the US now and more than 100 more waiting with permits. Some of these old military bases are now superfund sites such as Dobbins AFB out side of Atlanta. As America matures, we have learned allot from our past and we should be taking these learned experiences with us as we deal with any potential threat of economic melt down.
With Inventories being less for large retailers, it also means that small manufacturers who want to service the large retailers will have to be able to adapt or die to the relentless need for that retailer to move products faster and faster and inventory the products at their manufacturing facilities, and then move them quicker. But they cannot afford to run their own trucks because the fuel costs will take them out of the running to offer the lowest cost to the purchasing departments of retailer, store the product, make the product, ship the product and offer the best terms on payment to the retailer. Who is not anticipating on paying quickly, but stringing out the payables almost as bad as Sears in the 70s and 80s. Look at the new boss at Home Depot, from GE, savvy guy, watching numbers and look at their CFO, both sharks; great for shareholders equity, but devastating for the small manufacturers. Will these large companies look to Sam Walton’s buy American philosophies? No, they are beholden to Wall Street to save a buck and if that buck is in China, tough. Great makes us competitive here, but we have a standard of living to protect, if we erode our job base and therefore having a declining middle class we lose anyway. Home Depot loses their market and we lose to China. We have allowed 1 million immigrants per year to enter our country nearly unchecked, what happens when these new people are happy at a lower standard of living, driving the wages lower and then causing civil unrest with different races vying for the same jobs before we can stop our self segregation and start melting as was our original plan. If we kill our job base, we are sunk. All over oil prices? It is time for us to stop this bull and move back into the grove. America works better when everyone is winning together. That same mission works well on a sports team, military armies and even in the economy. Everything relates to everything else and nothing can be considered of no value and no decision of policy should be arbitrary. Deciding not to decide is a decision and that has not worked yet and we need to do something now.
Lance Winslow
Tags: airlines, fuel prices, train, trucking