Fretting over fuel

May 5, 2009
Though diesel fuel prices are relatively low and stable at the moment, transportation experts continue to worry about how fuel prices are going to behave down the road

Though diesel fuel prices are relatively low and stable at the moment, transportation experts continue to worry about how fuel prices are going to behave down the road, especially for truckers.

Fuel prices have remained steady for four weeks now, no more than a penny above or below $2.22 gallon, and are down nearly $2 compared to the same period in 2008.

"It's really not so much the actual price of diesel fuel but price volatility," Bob Novack, associate professor at Penn State's Smeal College of Business, told FleetOwner. "If trucking companies are able to anticipate and plan for fuel price increases and decreases, then fuel causes less of an impact on their bottom line and--by extension--freight rates."

The problem last year was that fuel prices went up so fast for so long that truckers and shippers alike could not compensate for them, he explained.

"It caught everyone in a bind. High fuel prices drove carriers out of business, while escalating fuel surcharges blew shipper freight budgets away."

That's why Novack added a special session on fuel prices to Penn State's 19th Annual R Hadly Waters Supply Chain symposium being held at the university this week.

And as a result of more volatile fuel prices, shippers and carriers alike are trying to develop a more equitable way to calculate fuel surcharge, according to Schneider Logistics is its annual "State of the Industry" report issued earlier this month.

"Currently, fuel surcharge programs involve a particular fuel surcharge rate being applied to the miles ran in a given time period – i.e. monthly or weekly," the company--a division of truckload carrier Schneider National--said in its report.

"This type of program is effective in a stable fuel market. However, in a market where fuel prices are rapidly increasing, this type of program does not fairly compensate the carrier for the increased cost of fuel. Conversely, in a market where fuel prices are rapidly decreasing, the shipper may incur significantly higher fuel surcharge costs."

This situation is leading to the development of fuel surcharge programs based on the true market cost of fuel per freight movement – programs that involve proprietary software that can calculate actual fuel costs on a per lane basis, for a given day, Schneider Logistics said. "This type of fuel surcharge program may become the norm if the volatility in fuel costs continues," it noted.

Concerns over fuel price volatility remain-- despite predictions that both global and U.S. oil consumption should continue to decrease throughout 2009, mainly due to the ongoing global economic downturn.

According to the Energy Information Agency (EIA), global oil consumption dropped by approximately 50,000 barrels per day by December 2008 and is projected to drop another 450,000 barrels per day in 2009, continuing the downward pressure on world oil prices. U.S. domestic oil consumption dropped 1.2 million barrels per day in 2008 when compared to 2007 consumption levels; and an additional 200,000 barrels per day in 2009.

"It appears that the current trend of low crude oil prices will continue as long as the global economic downturn continues," the EIA, part of the Department of Energy, said in its short-term outlook released this month. "Based on a number of different reports, most experts believe the economic downturn will continue through 2009, and maybe into the first quarter of 2010," added EIA. "The one wild card that could push oil prices higher would be geopolitical conflict."

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