News From The Industry

| December 12, 2008

Charlie Delzer avoids buying fuel in the Northeast, where prices have spiked.

NO RELIEF FOR COSTLY DIESEL

As if the economic pressures – a slow economy, low rates and slow freight – on truckers weren’t bad enough, things are getting worse. Diesel prices have risen as much as 35 cents above last year’s levels, and analysts say the sky is the limit.

From a political strike that has turned off oil pumps in Venezuela to the lingering threat of war with Iraq, there is no shortage of factors pushing diesel prices higher. Average fuel prices rose above $1.50 nationally in January for the first time since the week of the Sept. 11 terrorist attacks. Prices retreated to $1.478 for the week ending Jan. 13, but that’s nearly 20 cents higher than the five-year national average, says T-Chek Systems energy analyst Mark Derks.

“I think owner-operators are going to see today’s price or even higher over the next few months,” he says. “Expect extra volatility. If the Venezuela situation continues, prices could go as much as 15 cents higher at the retail level.”

Owner-operator Charlie Delzer of Cascade, Md., says he’s been paying up to $1.49 for diesel and expects the price to go as high as $2 if the United States goes to war. He’s trying to buy fuel in the South, where it’s cheaper, and to avoid the Northeast, where prices have spiked.

Still, the high price of fuel has prompted the veteran driver to install a $7,700 generator to save on idling costs and to be more choosy on loads. He waited three days at a truck stop in Meridian, Miss., for an oversize flatbed load that would cover his costs and put a little change in his pocket.

Analysts say the biggest driver of price now is Venezuela, where a political standoff between President Hugo Chavez and striking oil workers showed no sign of ending by mid-January. When it’s resolved, it may take months to get production back to normal, Derks says.

Since Venezuela contributes as much as 10 percent to 15 percent of the U.S. oil supply, the loss is significant, especially on the East Coast and in the South, where much of Venezuela’s petroleum goes. Prices there have been climbing several cents a week since the crisis began in November. Prices continue to be highest in California, where Bakersfield, Calif., trucker Robert Deharsh says he pays as much as $1.60.

U.S. Department of Energy analysts, who are also predicting high prices at the pump, say diesel inventories are at seasonal lows, and any increase in demand, such as from a prolonged cold spell, will send the price higher.
– Sean Kelley

STIMULUS PLAN COULD HELP OWNER-OPERATORS

The economic stimulus plan announced last month by President Bush would give favorable tax treatment to owner-operators.

The proposal will accelerate his 10-year tax plan, tripling the amount of equipment purchases small companies can write off as expenses. Bush said that his $674 billion stimulus package would cut taxes, help jobless citizens and boost the economy. The plan must still clear Congress.

It would decrease the amount of income tax and Social Security tax typical owner-operators would pay, says Howard Abrams, president of the California-based PBS Tax and Bookkeeping Service. “It could be more money in their pockets immediately,” he says.

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