O/O challenges: More solutions to high fuel
First, Landstar has a very strong fuel discount program that includes all the major chains and many independent locations. The program offers both retail-minus pricing, which offers highly competitive pricing in periods of rising fuel costs, and cost-plus pricing, which provides highly competitive pricing in periods of declining fuel costs. The cost-plus discounts are often significant when compared to the street price.
In 2011, discounts off street price from this program totaled nearly $16 million, all of which was passed through to the Landstar owner-operator who purchased the fuel.
Secondly, we negotiate equitable fuel surcharges with our customers and pass 100 percent of the fuel surcharge we collect from customers to our BCOs. In the first quarter of 2012 Landstar invoiced customers for $71.1 million of fuel surcharges that were passed 100 percent to BCOs.
While alternative fuels are still a long way from the mainstream, especially in the irregular route, long-haul market in which Landstar owner-operators primarily participate, improving fuel efficiency offers the best way to cut fuel costs — after all, the least expensive gallon of fuel is the one you don’t have to buy. To that end, we’ve long offered tips on improving the efficiency of existing equipment — such as the effect of slower speeds and discounts on products like APUs — and have recently launched an effort to help our owner-operators to first understand the advantages of a newer, more-efficient truck and then help them acquire a newer truck through programs facilitated by the Landstar Contractor Advantage Purchasing Program (LCAPP).
Six-truck small fleet owner-operator Thomas Blake
In 2008 — end of November, around Thanksgiving, I had myself shut down. It got to where I was out there and all I was doing was trying to keep my customers happy and haul their [container] loads. When I started looking at the books I was just like, “Oh man, I’m killing myself.” If you’re not paying attention to what things are costing you you’re going to leave a lot of money on the table to where you’re not making a profit. I figured out that I wasn’t really making anything [with the cost of fuel]. I turned around and contacted my customers and said I’ll have to implement a fuel surcharge — I took average fuel mileage and came up with a percentage of the price I haul on the load. Two different charges — one on the short hauls, one of the road hauls, both based on the DOE average. I look every Monday at the average, and my surcharge changes then. I give [shippers] my fuel-surcharge chart and the DOE’s website so they can check on me.
Further, I’ve got all my trucks governed at 70-72 mph. I’ve got Webasto heaters for the wintertime in each truck, which will burn a gallon of fuel a night versus a gallon an hour. I watch the tire pressure.
With these computers on the trucks to where I can see how fast they’re going, I’ve found that [the old adage about speed and fuel mileage -- for every 10 mph over 60 you lose a mile per gallon] is true.
Do you know what your truck costs to run? If you’ve got a truck payment — and insurance payment — without that truck rolling down the road, how much does it cost you? I told a guy leased on to J.B. Hunt…, “You’d be better off driving their truck. You’re probably only making 20 cents a mile after paying their bills.” Owner-operators need to pay attention to what their cost is. If they’re going to deal with all the headaches and they’re not making at least 40 cents a mile in profit they might be better off in a company truck.
Blake on natural gas trucks: I’m reading about them — there’s nothing [in and around Kansas City-area rail yards, where he runs,] yet in terms of fueling infrastructure. The rail yards in Long Beach have them. Everything I’m reading looks good, but we need infrastructure to be in place before we can really switch to it.
Stay tuned for more…