Volume 47, Issue 4 - May 2008
Running on Empty
How Distributors and Dealers Battle Rising Fuel Costs
by Samantha Carpenter, editor of Shelter magazine.
Do it Best Corp. and the managers of its member companies know first-hand how the increase in fuel is affecting them. And they are being forced to think of out-of-the box ways to reduce fuel consumption.
“We outsource the delivery of our products … to larger trucking companies in the transportation field and, therefore, we get some economies of scale beyond what we would generate,” says vice president of logistics John Snider. “Internally, we have offset some of the diesel [cost] increase by reviewing our routes and working with our members to shift some extra volume that would ‘split’ a route (i.e., create a second delivery) and instead move this additional volume to an alternate day where there is additional capacity. We have driven 200,000 fewer miles this year by handling split routes and normal routes carefully, and this has helped to mitigate the increase.”
What kind of fuel projections can companies like Do it Best Corp. expect?
The American Trucking Associations (ATA) is projecting record-high diesel fuel prices in 2008. ATA said the trucking industry will spend $135 billion on fuel in 2008, based on current price forecasts. This marks a $22 billion increase over the $112.6 billion spent by trucking in 2007.
ATA president and chief executive officer Bill Graves said the trucking industry is experiencing the highest prolonged fuel prices in history. Historically, fuel represented the second-highest operating expense for motor carriers, accounting for as much as 25 percent of total operating costs. For some motor carriers, however, fuel is beginning to surpass labor as their largest expense.
“The trucking industry is making great strides in its efforts to reduce overall fuel consumption. But an affordable supply of diesel fuel is imperative to keep our trucks moving,” Graves says. “There is little to suggest that fuel prices will decline any time soon.”
The average cost to fill the fuel tanks on a typical tractor-trailer has increased 116 percent, or $615, in just five years. Because trucks haul 70 percent of all freight tonnage, rising fuel costs have the potential to increase the cost of everything transported by truck, including food, retail and manufactured goods.
An Across-the-Board Increase
Whether you are a distributor or dealer of building products, chances are you use your own set of trucks or use less-than-truckload (LTL) carriers to ship and receive products, and the increase in fuel prices is affecting your company. Distributors and dealers say the price of fuel has gone up across the board for them.
Jack Cortese is president of Bridgewater Wholesalers Inc. (BWI) in Branchburg, N.J., a company that has its own fleet of trucks. He says that fuel has gone up 40 percent for his company in the past year and has raised the price of inbound shipments (from suppliers) 8 percent. Cortese says the price to ship products to its customers has only increased 2 percent because his company is absorbing about 75 percent of the fuel increase. Vice president Tom O’Meara’s company has its own fleet of trucks and has seen a 58 percent increase in fuel over the past year. His company, J.B. O’Meara in Burnsville, Minn., does use LTL carriers, but on a limited basis. The surcharge his company sees from LTL carriers ranges from 1 to 10 percent.
Huttig Building Products, headquartered in St. Louis, has both its own fleet of trucks but also utilizes LTL carriers and has witnessed a 30-percent fuel cost increase in the last year. He says it’s hard to say how much fuel has raised the price of shipping his company’s products. “We can’t charge a fuel surcharge and our prices are determined by the market,” says Donald Black, operations director for Huttig.
Shannon Morrissey, chief of operations for Christensen Lumber in Fremont, Neb., says the price of fuel has increased for his company 25 percent over the past year. The company has its own fleet of trucks and uses LTL carriers (to receive products). Morrissey says that how much his fuel costs have increased depends on the distance to the customer, but that the increase hasn’t changed the cost to ship locally. His cost to receive products has increased, however.
“All products we receive have fuel surcharges; prices vary,” he says.
Conserve, Conserve, Conserve
But there are steps distributors, dealers and other building supply companies can take to decrease fuel consumption, and many distributors and dealers are enacting steps to decrease their usage.
Christensen Lumber is combining loads. “We’ve always tried to combine loads, but now we’re forced to cut back on the number of deliveries [and wait until the truck is full],” Morrissey says. Christensen also follows a maintenance program on all of its trucks; smaller trucks go through maintenance after 5,000 miles and larger trucks go through maintenance after 10,000 miles.
BWI is doing the same. “We are looking at every route, checking loading and holding trucks where the loads are light,” Cortese says. “We are also looking at cutting route days as a last resort.”
Manufacturers are also asking distributors and dealers to combine shipments and order in larger quantities. Column Crafters is one such manufacturer that is doing this. “[We are asking customers to] bunch orders and wait the few extra days for their orders,” says Richard McMahon, vice president of sales and marketing. “[We are also] asking customers to order larger quantities. We ran a history report on our customers’ usage and presented them with the report showing them their monthly usage and presenting proper orders to cover their usage for a month. This has worked well, and they now order for a month’s usage instead of ordering every week.”
Some distributors are turning to technology to help reduce fuel consumption.
“We are using a routing system that has reduced fleet miles, as well as a truck tracking system that monitors drivers and truck engines. We have increased fleet miles per gallon (MPG) by over three-fourths of an MPG,” Black says. “Some branches’ MPGs are up one MPG, so we are buying a lot less fuel.”
Huttig also pays an incentive to its drivers for increased MPG, Black says.
BWI also uses technology. “Use of the GPS system has enabled us to remove the fat from the shipping of product,” Cortese says. “It also allows us to see where each truck is at any time.”
While combining loads and using truck-tracking systems can help companies use less fuel, many are slowing down (as far as speed) to help reduce fuel consumption.
Con-way Freight, one of the nation’s LTL freight transportation companies, recently turned back the speed governors on its 8,400-tractor fleet in a move to improve fuel conservation and reduce carbon emissions. The company has adjusted the governors on its truck engines to run at a maximum of 62 miles per hour, down three miles per hour from previous settings.
The move is expected to reduce consumption of diesel fuel from its over-the-road tractor fleet by nearly 3.2 million gallons annually, while eliminating approximately 72 million pounds of carbon emissions from the environment.
“Freight transportation, by its nature, is a significant consumer of carbon-based energy resources. Yet it also is [an area] where, if we look creatively at how we operate the business, we can find and adopt practices that reduce our carbon footprint and help the bottom line,” says John G. Labrie, Con-way Freight president. “Fuel conservation and cost savings aside, this speed reduction initiative will have the single largest impact on carbon footprint reduction of any operational or business practice change available to us.”
According to a recent Associated Press article, YRC Worldwide Inc., the nation’s largest LTL carrier, has had its maximum speed on its 35,000-tractor fleet set at 62 miles per hour for ten years.
Mike Smid, president and chief executive officer of YRC North American Transportation, said in the article that he estimates that “for every mile-per-hour above the 62 benchmark a truck travels, there’s a 2-percent impact on fuel consumption.”1
No matter where you fall in the supply chain, you are being impacted by rising fuel costs, but thinking of ways to combine loads, by using technology and by slowing down, you make pump prices less painful.
1 Bomkamp, Samantha (2008). “Truckers Slow Down to Save Fuel, Cut Costs as Weak Demand and Pricing Cuts into Bottom Line.” Retrieved March 17, 2008, from Yahoo Finance, March 14, 2008, from http://in.us.biz.yahoo.com/ap/080314/market_spotlight_trucking.html?.v=1&printer=1.
To alleviate future significant fuel price fluctuations, the American Trucking Association (ATA) has called upon Congress and the Bush Administration (through a letter writing campaign) to address this crisis situation and move immediately to take steps to increase diesel fuel supply. These include increased refining capacity and the exploration of Alaska’s Arctic National Wildlife Refuge and Outer Continental Shelf.
Simple Strategies Can Help Mitigate Rising Fuel
As soaring oil prices drive the cost of diesel to record highs, Ryder System Inc., a global transportation and supply chain management company, offers simple strategies to help businesses reduce fuel consumption and improve the efficiencies of their fleets and overall supply chains.
“Regardless of industry or size, almost every business relies on trucks in some way to move products across the nation’s highways, and, therefore, is feeling the impact of these price increases,” says Todd Renehan, executive vice president, sales and marketing, fleet management solutions.
Here are some operating practices you can implement immediately to improve the fuel efficiency of your fleets:
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