Fuel frustration

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This is putting an unbearable burden on truckers today.” –Billy Sutton, an owner-operator from Batavia NY

The burden Billy Sutton is referring to above is the price differential many truckers face at the fuel pump when they buy diesel with credit and debit cards instead of cash – a differential, however, that often times disappears when you go from the truck fueling island over to the pumps reserved for everyday motorists driving cars and pickups.

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Sutton told me he encountered this proper at a Pilot fuel stop in upstate New York near his home base. He uses a debit card to refuel his classy Western Star rig and pays eight cents more per gallon to do so. Then a funny thing happened – he took his diesel pickup to the very same Pilot location, refueled it with diesel at the island reserved for motorists using the very same debit card … and paid the CASH price.

“So I’m asking myself, why is this going on?” he told me by phone. “I mean, truckers buy a lot of fuel – up to 100 gallons a day, up to 400 or 500 gallons a week. And eight cents more per gallon adds up to an extra $30 to $40 a week. And most like myself don’t carry lots of cash to pay $200 or more for a fill up.”

Of course, Sutton’s suspicion is that the higher fuel price for credit is there for those very reasons – to take advantage of truckers, especially independents. They buy lots of fuel per week and rarely carry wads of cash, so let’s squeeze them for all we can get. “You know, we’re their best customers – we buy large amounts of fuel at regular intervals. Yet we end paying more for it,” Sutton pointed out to me. “That’s not right.”

Now, sure, many in the petroleum industry might complain that truckers just don’t understand the complexities of the petroleum industry – the costs involved to produce, store, and transport diesel fuel throughout the U.S. Thing is, though, fuel is the lifeblood of truckers – typically the single highest cost on a small trucker’s balance sheet, according to the Owner-Operator Independent Drivers Association (OOIDA). And every time the price per gallon goes up just a couple of pennies – regardless of whether it’s due to rising oil prices or the cash-credit differential – trucker’s start losing their livelihood.

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“As you may know, small business truckers – operating six or fewer trucks – comprise close to 90% of the trucking industry,” Jim Johnston, OOIDA’s president, said in an open letter to President Bush’s administration last year during 2008’s brutal run-up in global oil prices. “Considering that trucks account for the movement of 69% of all goods transported in the U.S. and are the only providers of goods to 75% of American communities, small business truckers are quite literally the backbone of our nation's economy. Volatile and often high fuel prices have devastated these businesses years.”

Small business truckers in particular suffer greatly from erratic and escalating fuel prices, he stressed.

Each time the price of fuel increases by 5 cents per gallon, a trucker’s annual costs increase by roughly $1,000 – an enormous burden on the small business trucker whose average annual income is $37,000 to $40,000, Johnston noted.

The petroleum industry can say all it wants about the high costs and complexity of drilling and shipping oil, then refining it into diesel and gasoline – all of it true – but the problem is a lot of “smoke and mirrors” gets deployed along the way to justify pricing schemes and other sleight-of-hand that leads many believe a lot of price gouging is going on out there.

Look at just the difference between diesel and gasoline prices, for starters. Last week the average price of gasoline in the U.S. hovered around $1.83 a gallon, with diesel prices pegged 44 cents higher at a U.S. average of $2.27 per gallon.

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Then look at the cost of fuel relative to oil prices. Last year, diesel prices skyrocketed to a U.S. average over $4.76 per gallon by mid-July – climbing beyond $5.02 per gallon in California as oil prices shot past $133.60 per barrel before crashing to $32.49 per barrel by mid-January this year. Yet though the price of oil fell by almost 70%, diesel pump prices only declined by a little under 50%. Hmmmm, one says. The petroleum industry says the price of oil is the biggest factor in fuel prices … yet their prices sure aren’t falling at the same rate, now are they?

Then there’s that farce known as “zone pricing” – a practice under which refiners sell gasoline to retailers at wholesale prices that differ across geographic areas. Generally, these geographic areas vary in the level of competition and traffic counts, according to a report by the state of Illinois. Thus refiners charge more in areas where demand is high and/or competition is low. This practice is viewed by some as price gouging and by others as a natural outcome of competitive markets, according to the state.

It also makes absolutely no sense. From my own experience, “zone pricing” results in the price of gasoline being different at the eight filling stations in and around where I live – the cheapest a good 17 cents below the most expensive. Yet they are all in the same area, all within the same relative easy distance to the big fuel storage depots in Matua and Newington. So why the difference (and it’s a BIG difference)?

Illinois, for example, studied gasoline pricing along a 170-mile stretch along Interstate 55 from the towns of Litchfield to Dwight. This is an area outside the immediate influence of the Chicago and St. Louis regions. Areas were grouped into three categories: 1) large cities, 2) along the interstate, and 3) rural towns, with Springfield and Bloomington the only two larger cities in the third area of study.

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According to a month’s worth of data compiled by the state, prices average five to eight cents per gallon higher at stations along the interstate than at stations in the cities of Bloomington and Springfield. Prices were also four to six cents higher in the smaller cities and towns located away from the interstate. Clearly, the higher level of competition within Bloomington and Springfield results in lower prices. On the other hand, the captive market along interstates or in the smaller towns results in higher prices. Whether this is a function of wholesale zone pricing or a higher retail markup is unclear, Illinois concluded.

That’s not much help to motorists like myself trying to watch every penny in this hard times, but that’s even worse for truckers. They must either buy higher priced fuel along the highway or burn more of the black stuff in search of cheaper prices on local roads. Either way, the petroleum industry makes money.

Sure, now, there are fuel cards and other discount programs truckers can sign up for that’ll give them discounts. But what if there’s other funny business going on? Like, for example, selling “hot fuel.”

OOIDA joined with other groups in shedding some light in that subject last year – an issue that costs truckers and consumers and estimated $2.5 billion annually. The phrase “hot fuel” refers to expanded diesel fuel or gasoline that is sold at retail pumps at temperatures higher than the century-old government standard of 60 degrees. The warmer the fuel, the less measurable energy (Btu) and fewer miles to the gallons a vehicle will receive. For example, if a tractor-trailer averages six miles per gallon, 200 gallons of 98-degree fuel is going to take that truck 36 fewer miles than 60-degree fuel.

OOIDA challenged the U.S. Department of Weights and Measures last year to require fuel retailers in all 50 states to install temperature compensation devices as a solution to the hot fuel problem, but I am not sure what became of that effort.

These are just some of the frustrations facing truckers when it comes to buying the fuel that keeps them working. The petroleum industry could go a long way to get more support from this vital part of their customer base if they’d do away with a lot of these pricing gimmicks. Somehow, though, I doubt that’ll happen any time soon.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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