Analysts say events could easily drive diesel prices even higher.
FUEL PRICES HIT RECORD LEVELS
The national average price of diesel reached $1.825 a gallon last month – 5 cents above the highest average since the U.S. Department of Energy began tracking diesel prices more than a
decade ago. The price is 33 cents higher than a year ago.
Perhaps the worst part is that there is no reason to believe petroleum prices have peaked.
Oil prices spent much of August either in or close to record territory, largely due to fears of supply interruptions, demand from the United States and China and political problems in Russia, a major oil supplier. Despite the run-up in prices, DOE analysts say there is plenty of oil, especially since The Organization of Petroleum Exporting Countries raised production quotas in June and August.
Analysts say even a minor disruption in oil production could push the price of a barrel of oil above $50. It spent a week hovering around $45, well above OPEC’s target price of $28 a barrel. A barrel of oil cost less than $20 a barrel in early 1999, when truckers paid around $1 a gallon for diesel.
A DOE forecast in mid-August suggests that prices of diesel, gasoline and oil should drop somewhat in the fall, unless a major disruption of the oil supply occurs. Then all bets are off, the DOE said, because most oil producers are producing oil at or near capacity and the system’s ability to increase production to compensate for a problem is at “its lowest point of the past three decades.”
FLEETS DANGLE FAT CARROTS FOR OWNER-OPERATORS
Pay increases “are moving across the industry like a wave,” says Gordon Klemp, president of the National Survey of Driver Wages, which tracks carrier wage and benefit packages.
Among the most aggressive of the new pay offerings is the $7,000 sign-on bonus Paschall Truck Lines, of Murray, Ky., began offering owner-operators Aug. 1. To qualify, owner-operators must have no preventable accidents and must drive a minimum of 10,000 miles per month (18,000 for teams). The bonus pays out in nine months in five increments: $1,000 at first dispatch, $1,000 at 45 days, $1,000 at 90 days, $2,000 at 180 days and $2,000 at 270 days. “I’ve never seen anything this size,” Klemp says.
During the hiring frenzy of the late 1990s, most sign-on bonuses were $1,000 to $3,000.
Carriers began announcing pay increases in the fourth quarter of 2003, many of which took effect in January. Among the first to benefit from higher pay were owner-operators paid on percentage because freight rates began to rise slightly ahead of wages, Klemp says. “Since then, it’s rained pay raises for drivers,” he says. Wages remained flat from 2000 until the end of 2003, so part of the increases are just to “catch up” after three years of little or no increases, he says.
The most recent increases are driven by a strong economy, tight capacity and a growing shortage of professional truckers. “Everybody’s had a tough time attracting owner-operators,” explains John Hayman, PTL vice president. “They’ve been going through a tough business cycle. This is our way of showing them we support them.” The $7,000 sign-on bonus brings PTL’s compensation – a base rate of 85 cents per mile, plus a fuel surcharge – close to a dollar per mile, Hayman says.
Other companies, such as Schneider National, offer $5,000 sign-on bonuses. Five months ago, U.S. Xpress began offering owner-operator and company driver teams a $5,000 sign-on bonus, paid quarterly over 12 months. Since then, U.S. Xpress has seen its teams increase by 12 percent. The company also offers drivers a $5,000 sign-on bonus for some Midwest regional routes, which pays some in orientation, then monthly thereafter. “For the first time in a few years drivers are able to get money right out of orientation,” says Gary Kelley, U.S. Xpress vice president of safety and risk management.
“Over the next three years, we’re going to have to increase pay by $15,000 or more,” Kelley says, bringing annual pay for over-the-road company drivers to $60,000-$65,000. He attributes the projected bump to tight capacity and competition from other carriers for drivers. As for owner-operators, “whatever it takes, we’ll pay,” he says, “because that’s our business.”
TRUCKING ECONOMY STILL IN OVERDRIVE
Three indices of trucking performance rose through the second quarter, evidence that the hot freight market isn’t cooling off.
The American Trucking Associations’ advanced seasonally adjusted Truck Tonnage Index rose 0.5 percent to 160.3 in June.
“June’s data shows that the trucking industry continues to deliver a robustly growing economy,” said ATA Chief Economist Bob Costello. “Year-to-date, for the first half of 2004, compared to the same six-month period in 2003, truck tonnage grew an impressive 7.2 percent, after increasing just 3 percent for all of 2003.” Costello said truck freight volume should remain strong for the rest of this year.
The Freight Transportation Services Index rose 0.2 percent in May, reaching a record high for the 14 years covered by the index, said the U.S. Department of Transportation’s Bureau of Transportation Statistics. The index has risen the past four months.
The overall TSI, which combines freight and passenger data, also reached a record level with a 0.1 percent rise in May.
Finally, Cass Information Systems, which processes more than $8 billion annually in freight payables, says its freight and shipments indices rose through June. The Freight Expenditures Index rose as high as 1.616 in June, before falling back to 1.503 in July. Shipments also climbed, reaching 1.249 in June and slipping to 1.175 in July.
TCA ACCEPTING CONTEST APPLICATIONS
Think you’re the best leased owner-operator in America? If so, the Truckload Carriers Association wants to know about you.
TCA has begun accepting applications for its Independent Contractor of the Year contest, which is sponsored by TCA and Overdrive. It recognizes owner-operators for business skills, safety and their efforts to enhance the image of trucking.
The deadline to apply is Oct. 22. Finalists will be notified by Oct. 31 and asked to submit a more detailed application by Dec. 17. The application form is available at this site.
The contest is open to all over-the-road truckload drivers who have driven at least 1 million consecutive accident-free miles. A driver who has won the grand prize, an International tractor, before is not eligible to enter the contest again. A driver who has been a second- or third-place winner is not eligible to apply again for two years from the date of winning.
FREIGHTLINER EXPECTS SALES BOOM will CONTINUE
The Freightliner Group continues to outpace its long-term turnaround goals and expects the industry’s rebound to continue into at least 2006, said Rainer Schmueckle, president and chief executive officer.
Compared to the first half of 2003, Freightliner’s Class 8 truck orders are up 80 percent this year, Schmueckle said in a teleconference with trucking journalists. Class 5-7 orders are up 45 percent.
He attributed the “sudden, enormous growth of orders” primarily to carriers replacing, but not expanding, their fleets. The purchases represent the conclusion of extended trade cycles, improvement in the economy and increasing acceptance of the post-October 2002 engines.
Dealer growth has been especially strong with the group’s other truck brands, Western Star and Sterling, Schmueckle said.
Buyers, particularly owner-operators, have started paying more attention to fuel-efficient designs in recent months because of high diesel prices, Schmueckle said.
Another factor that will affect buying patterns in the next few years is the advent of 2007 engines that have to meet much tighter emissions requirements. Schmueckle said Freightliner, with others in the industry, continues to champion proposed government incentives that would encourage immediate acceptance of the new engines and prevent what happened in 2002-2003 – a heavy pre-buy followed by a sharp drop in orders.
A more immediate element affecting sales is a scarcity of materials that is limiting production. For example, Caterpillar, Cummins and Meritor have announced allocation schedules in recent weeks, he said.
Used trucks, too, are being snapped up, and their inventory is far below that of 2001, Schmueckle said. That year Freightliner announced a restructuring plan by which it intended to break even by 2003 and reach at least a 13 percent return on net assets by 2004.
“The fact is, we have accomplished much more,” Schmueckle said. The break-even point was reached in 2002 and the return for 2004 should be close to 20 percent.
VOLVO EXPECTS LESS DISRUPTION FOR 2007
While the peak of the pre-buy leading up to the introduction of the lower emission 2002 engines lasted two or three months, the pre-buy in anticipation of the 2007 engines will be more gradual, said Scott Kress, senior vice president of sales and marketing for Volvo Trucks North America. “Now, it’s two to three years.”
Already demand for new trucks, much of it pent-up replacement demand, has Volvo running a five- to six-month backlog – despite of increased capacity, Kress says. “But we’re only going to take capacity so high as we’re facing ’07,” he says. He predicts that by the end of 2005, most truck makers could already be sold out for 2006.
That’s why Volvo, with others in the industry, supports proposed government incentives that would encourage immediate acceptance of the new engines and minimize a large pre-buy followed by a sharp drop in orders, as the industry experienced in 2002-2003. Volvo plans to have engines meeting 2007 emissions standards in the field for customer testing by 2005.
“We are trying to be as proactive as possible,” says Volvo President and CEO Peter Karlsten, who, with Kress, met with Overdrive editors. “We would like to see it smooth out as much as possible.” For example, customers might agree to take only 70 percent of the trucks they need now and put off the other 30 percent into 2007, he says.
Even before demand for new trucks began picking up earlier this year, Volvo saw its market share increase by 2.8 percentage points since 2002, to 10.3 percent, a bump Karlsten attributes to customers’ “excellent reception” of the new VN.
Volvo has grown its dealer network to 249 full-line and 105 parts and service locations, of which 130 offer both Mack and Volvo products. While the companies share an integrated back office, Volvo and Mack remain two distinct – even competing – companies, Karlsten says.
“Today, we have good geographical coverage – even in the West,” Karlsten says. However, the company does plan to grow its dealer network to around 400 over the next two to three years, primarily by adding dealerships west of the Mississippi.
FMCSA TARGETS OUTLAW TRUCKERS
Within the next year, interstate truckers who try to escape regulatory scrutiny and insurance responsibilities by operating without motor carrier authority could discover that their efforts are inadequate.
The Federal Motor Carrier Safety Administration is considering a “non-entrant” inspection program that would try to ferret out renegade operators, says Charles Horan, director of FMCSA’s office of enforcement and compliance.
The agency likely would work with state and local law enforcement authorities as well as suppliers of equipment and services, such as new and used truck dealers or truck stops. Horan discussed the planned effort at a meeting of the Highway Committee of the National Industrial Transportation League, an organization that represents shippers.
Horan said the program is a brainchild of FMCSA Deputy Administrator Warren Hoemann, who is concerned that virtually all of FMCSA’s efforts are aimed at carriers that have Department of Transportation numbers. Hoemann believes a significant number of truck operators aren’t registered, and they probably are the carriers in greatest need of safety oversight, Horan says. “We want to level the playing field and get unsafe guys off the road,” he says.
FMCSA RESPONDING TO HOURS RULING
The Federal Motor Carrier Safety Administration was expected to have a plan in place by the end of August that addressed a court ruling overturning the new hours-of-service rule.
Charles Horan, director of FMCSA’s office of enforcement and compliance, said in early August that the agency expected to issue its plan of action by Aug. 30, the end of the 45-day automatic stay of the U.S. Court of Appeals for the District of Columbia decision.
In July, the court ruled that FMCSA did not consider driver health when it rewrote the 70-year-old rule. The new regulation, which went into effect Jan. 4, was to stay in place after the ruling for at least 45 days.
The latest developments on this story can be found on eTrucker.com News.
CALIFORNIA RESTRICTS IDLING
California has adopted a measure that will limit much truck idling to five minutes next year. Truckers who rest in sleepers in compliance with hours-of-service regulations would be exempt from the time limit, but may be affected by future regulations.
In July the California Air Resources Board passed the restriction, which will limit truck and interstate bus operators to five minutes of non-essential idling, but allows for exceptions, according to a board announcement. The rule will become effective in about six months if it passes the California Office of Administrative Law’s technical review.
The rule applies to any vehicle with a gross vehicular weight of more than 10,000 pounds. It applies to all trucks and interstate buses registered in California, as well as those from out of state.
The Air Resources Board and California Highway Patrol would enforce the measure. The agencies could charge violators with a minimum civil penalty of $100 per offense and criminal penalties.
The new rule does not apply when idling:
- During certain traffic conditions, such as at a traffic light.
- While the vehicle is in line, if it is at least 100 feet from residential areas.
- When forced to remain motionless because of bad weather or mechanical difficulties that the driver cannot control.
- When necessary to verify that all equipment is in good working order, such as during a daily inspection.
- While controlling cargo temperature; operating a lift, crane, pump, drill, hoist, mixer or other auxiliary equipment; or while providing mechanical extension to perform work functions for which the vehicle was designed.
- When operating defrosters, heaters, air conditioners or other equipment solely to prevent a safety or health emergency.
The regulation will cut 166 tons of particulate pollution per year and 5,200 tons per year of smog-forming nitrogen oxide emissions, the board says. California truck and bus operators are expected to each save an annual 125 gallons of diesel as a result of the regulation.
FMCSA DETAILS SPECIAL HAZMAT PERMIT
Carriers planning to haul certain highly hazardous materials must have a special safety permit, beginning Jan. 1, announced the Federal Motor Carrier Safety Administration.
FMCSA says it is requiring the special permit because certain materials would be more dangerous in crashes or terrorist attacks. The permit will be required for carriers hauling certain types and amounts of radioactive materials, explosives, toxic inhalant materials and compressed or refrigerated liquid methane or natural gas.
FMCSA estimated that the safety benefit to the U.S. economy resulting from fewer accidental releases of hazardous materials will be $3.7 million a year.
“This regulation will promote the safe and secure transportation of the most dangerous hazardous materials,” said FMCSA Administrator Annette Sandberg.
Under guidelines outlined in a final rule issued in June, the nation’s approximately 3,100 hazmat carriers must meet all federal operational, safety and security standards and must communicate regularly with drivers by phone or other electronic device. Carriers with less-than-satisfactory safety ratings will be prohibited from transporting the materials requiring special permits.
To prevent unnecessary interruptions of commerce, temporary safety permits may be issued to carriers without safety ratings for a period of 180 days pending the outcome of a compliance review.
FMCSA is also implementing a process to deny, suspend and revoke safety permits in this final rule. Safety permits will be denied if a carrier does not have a satisfactory safety rating. Permits will be suspended or revoked from carriers failing to comply with the Federal Motor Carrier Safety Regulations, Hazardous Materials Regulations or similar state requirements.
This final rule can be viewed at this site.
A NEW TOLL BRIDGE over the Rio Grande is in the works for Laredo, Texas, according to the Federal Register. The U.S. State Department received a permit application for an international bridge in the Laredo area from Webb County officials.
A TRUCK STOP ELECTRIFICATION project will wire 150 parking spots on Interstate 85 by mid-September. The National Association of State Energy Offices awarded a $1.5 million grant, and IdleAire Technologies Corp. is providing the remaining funding for the $3.5 million project. Truck stops with the new hookups include: Petro Stopping Center, Mebane, N.C., Exit 157; Pilot Travel Center #422, Newnan, Ga., Exit 41; and Anderson Auto Truck Plaza, Anderson, S.C., Exit 27.
A TEXAS TRUCKER found with 79 illegal aliens in his trailer faces charges of alien smuggling. Authorities detained Roger Alvin Auxter, 52, after a traffic stop on I-20 in Fort Worth on Aug. 9.
THE SPECIAL OLYMPICS will benefit from The World’s Largest Truck Convoy, which takes place Sept. 18. Organizers expect 2,500 trucks to participate in 27 states. This year’s event is expected to raise $250,000 for Special Olympics programs in the United States and Canada. Further information is available at this site.
ILLINOIS DRIVING SCHOOL instructors and trucking company employees will become subject to a new law Jan. 1 that makes an attempt to obtain a driver’s license through bribery a felony. Current law covers only public officials.