The Real Cost of Expensive Fuel
By Alan Burkhart (08/24/06)
For the last couple of years, not a day has passed without the high cost of gasoline being in the news. It’s a hot topic at home, at the coffee shop and at work. Everyone is concerned about what it costs to fill up these days.
I can relate. Even my tiny car with its twelve-gallon tank gets expensive to fuel when I’m paying $3.039 for gas. And yeah, I know that if you allow for inflation it’s actually cheaper now than it was twenty years ago. The pain comes not so much from the actual price but from the sharp increase over the last few years. We’ve had the cheapest gasoline on the planet for decades, and we’re spoiled.
But let’s talk a moment about the real cost of expensive motor fuels. It affects a lot more than the price of a fill-up for your car.
As my regular readers all know, I’m a cross-country trucker. I work for a small company in South Central Mississippi. My employer runs 33 trucks. On average, 25 of us fuel each day and we generally drive 600 to 700 miles per day.
So, at $2.959 per gallon, and an average of 100 gallons per fill…
That's $6,828.46 per day just in fuel costs for a small fleet - $2,492,388.46 per year - just for fuel.
It hasn't been that long ago that our fuel cost was about 27 cents per mile ($1.759 per gal). At 6.5 mpg, the present fuel cost is 45 cents per mile ($2.959 per gal). With a heavy load traveling through the West Virginia mountains (which I do often), the mpg's drop to anywhere from 6.1 to 5.9.
Add to all that my current wage (I'm paid by the mile).
Also add the per-mile cost allowance for permits, insurance, on-the-road-repairs, inspections, salaries for office & shop personnel, supplies for the office and shop (oil, belts, parts, tires, etc.), tags and utilities. And of course, taxes. Our per-mile charge to haul a load has to be enough to cover all the above and still have something left for the boss to put in his pocket.
Consider that virtually everything you own was transported by truck at least once, possibly by Yours Truly. Even with the increased use of piggy back rail containers, the trucking industry continues to haul a tremendous amount of freight each year. In 2005 the industry moved 10.7 billion tons of freight and collected $623 billion in gross revenue. Even with that kind of gross revenue, most companies are lucky to clear 5 or 6 cents per mile per truck.
And now Uncle Sam is introducing yet another regulation. The new ultra-low sulfur diesel is expected to cause a drop of 1 to 3 percent in fuel mileage. One won't notice it with a single truck, but with a fleet, this will be a significant cost increase. 2007 and later year-model trucks are forbidden by law to use anything other than the new fuel, as their engines are equipped with a special filtration device (making trucks heavier and more expensive) that reduces emissions.
The new diesel also lacks the necessary lubricity of earlier fuels, and this means that a lubricating additive must also be added to the mix. More ingredients equal an even higher fuel price. And all of this adds up to higher freight rates.
Consider a can of beans. A farmer usually hauls his own product to a co-op. From the co-op the beans get shipped via commercial carrier to a processing plant. Also coming into the plant by truck are additives, preservatives, labels, spices and of course the cans themselves. The vendors for all these products have built shipping costs into their prices.
Then it’s time to ship via commercial carrier to a distribution center. The processing plant has also built this cost into the product. Distribution centers generally have their own fleets for delivery to retail outlets, but they still face the same expenses as any other carrier. So, the grocery store chain also builds the cost of getting the beans to the store into the price you and I pay at the cash register. Transportation costs add to the ultimate price of an item at every phase of the manufacturing and distribution process. It’s unavoidable.
This is not an indictment of my industry, by the way. The trucking industry grows and contracts according to the demands of the economy. Tonnage is actually down just a bit this Summer from last Summer, due mainly to a slight cooling of the economy. Rail shipment, on a per ton or per mile basis, is actually cheaper than shipping by truck. And, about everything that can be hauled via rail is in fact being hauled by rail. But shipping by rail is a comparatively slow process. You don’t ship fresh produce across the country via rail. It’d be rotten to the core by the time it arrived.
Many factories and distributorships nowadays use the J.I.T. (Just In Time) method of warehousing. This means they have a bare minimum of inventory and depend on fast shipment by truck to keep them supplied. This helps keep their costs down, and this in turn lowers your costs as well. Trains can’t do J.I.T., for obvious reasons. It simply takes too long to get it there, and not everyone has a rail spur at their back door.
And of course, once a shipment arrives at a rail yard, it still has to be trucked to its ultimate destination. Same goes with air freight. I couldn’t begin to count all the loads of air freight I’ve delivered. If it moves, it moves by truck.
So what’s my point?
Simply this: As fuel prices increase, so will the price of just about everything you buy. Transportation has always been among the biggest costs to any manufacturer whether they ship by air, rail or truck. It’s not going to change until “Beam me up Scotty” becomes a reality. Fuel prices will in all likelihood continue to climb for the foreseeable future, and that means transportation costs will climb accordingly. In other words, it’s not going to get any better anytime soon.
All you can do is work harder, work smarter, budget your money tightly and drive an economical vehicle. And please buy lots of beans. I need the work.
Related Reading:
Conversion could be behind Colorado rationing
http://www.thetrucker.com/News/Stories/2006/8/16/ConversioncouldbebehindColoradorationing.aspx
Container traffic sets a record pace
http://www.etrucker.com/apps/news/article.asp?id=54887
Part of Prudhoe Bay still pumping, for now
http://www.etrucker.com/apps/news/article.asp?id=54885
Diesel up another penny after passing $3
http://www.etrucker.com/apps/news/article.asp?id=54909
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