High Fuel Costs Threaten Bankruptcy for Truckers

A couple hundred truckers, after driving their rigs in a horn-honking circuit around Washington, D.C., last week marched on the Capitol with pleas for Congress to halt oil commodity speculators, open more U.S. fields for petroleum drilling, and even cap the price of fuel. A deluge of rain had drenched their rally on the lawn, but the reality inside the domed building, it turns out, was far more dampening to their cause.

Truckers parade in Washington, D.C., to protest high fuel prices.

It appeared there was little that lawmakers or the Bush administration could do—even if they were willing—to quell the stampeding global oil market. The average price of gasoline has hit $3.60 per gallon, up 15 percent just since the start of the year. But the run-up is particularly severe, and the situation grave, for the industry that delivers consumers their food, clothing, and other goods. Trucks run on diesel fuel, a commodity in great demand globally just when clean air standards have made it harder to refine. The price has shot up nearly 25 percent since January to a $4.18-per-gallon average, up 50 percent in a year.

With the cost of a fill-up for an 18-wheeler now well over $1,000, fuel surpasses labor as the biggest cost for some trucking firms. Big companies face falling profits. Small and independent truckers, some 20 percent of the industry, face devastation. Trucking firm failures jumped to "catastrophic levels" in the first quarter of the year, reports industry analyst Donald Broughton. He estimates that 42,000 trucks, or 2.1 percent of the nation's capacity, were idled in the first quarter—with nearly 1,000 companies going bankrupt. Broughton says the cash-flow crisis caused by unrelenting weekly diesel price increases has truckers looking to borrow money for basic operating expenses—license tags, insurance, and, of course, fuel. The credit-crunched bankers are cutting their losses and repossessing rigs.

In all, it is the worst crisis in the industry since the 2001 recession, but with an ominous twist. Thanks to the falling U.S. dollar, Russia and eastern Europe are eager to buy those idled trucks—eliminating the rigs from the U.S. marketplace for good. That may seem to matter little in the slowing U.S. economy, where there still are too many trucks chasing too few loads. But when U.S. demand picks up, there will be fewer trucks—and higher shipping prices. "I won't tell you that that is necessarily a bad thing for truckers," says Bill Graves, president of the American Trucking Association, which represents the big firms. "But when the price of transportation goes up, the price of goods goes up. This is an insidious cycle we're in right now."

Slow down. Trucking companies are doing what they can to cut fuel costs. Con-way Freight, one of the nation's largest trucking firms, is turning back the electronic devices that control speed in its fleet from 65 miles per hour to 62 mph. The company estimates that by slowing its drivers, it will save 3.2 million gallons of diesel fuel a year. At the current price, that comes to more than $13 million per year.

The American Trucking Association would actually like to see a nationwide speed limit of 65 miles per hour, but Graves admits that no politicians so far are taking up the cause. "You'd burn less fuel, produce less greenhouse gas, and save lives—a win, win, win," says Graves. "Obviously, it makes too much sense to get a lot of traction." But the idea is not likely to please the independent truckers, for whom speed can be the only advantage. Big trucking companies can negotiate better fuel prices by buying in bulk and can deploy large fleets to minimize "empty miles," the return trips driven without cargo, which kill the economics of the small trucker. Broughton sees an "ever widening gap between the 'haves' and the 'have-nots' in the industry" and expects trucking to eventually be winnowed down to a few big players that can dominate the market.

Michael "J. B." Schaffner of Nocona, Texas, can attest to the pressure. He hauls for a small company, trying not to let his 250-gallon tanks run too low to reduce the cost of any single fill-up. But it just means he has to fuel more often. A few weeks ago, Schaffner said, "I woke up and said a prayer" and started urging fellow truckers to speak out. He helped organize the rally on the Capitol. He has heard that the market sets the price and there is little lawmakers can do, but he says he is looking for a sign that they care. "Every single person in every part of the line [that distributes goods] is also a consumer," he says. "It is affecting all of us."