Aug 1, 2008 12:00 PM
The other reason is that economic conditions are causing trucking failures. During first quarter 2008, 935 trucking companies (defined as fleets with at least five trucks) went out of business.
“That is the most failures since the third quarter of 2001 — the last recession,” said Headley, adding that the number of failures has increased since the last quarter of 2006.
“With more carriers exiting the marketplace, and carriers trimming fleets, capacity is contracting quickly, even without a huge increase in demand.”
Record level fuel prices are having a direct and indirect impact on trucking, he said. The indirect impact is through the consumer, as “the high cost of gas is leaving households with less money to spend on other items, so there is less demand for trucks to move loads.”
The direct impact is the cost of fuel, which is 60% higher than this same time last year. “The industry is on pace to spend $65 billion more on diesel this year than last year, when it paid a record $112.6 billion.” This is almost entirely due to price, as “consumption of diesel has been relatively flat since 2000.”
The main reason for the increasing price of diesel fuel is the high cost of crude oil, which “accounts for 65% of what we pay for diesel at the pump, and increased worldwide diesel demand,” explained Headley. “Diesel will remain a premium over gasoline for the foreseeable future as worldwide demand for diesel remains stronger than for gasoline.”
He noted that spare capacity of crude oil — the amount of idle production that can be brought on line quickly to meet demand, “is very, very low right now. The current estimate of worldwide spare capacity is about 2 million barrels per day, and that is a very thin supply cushion. So even a minor supply disruption could have a very huge impact on supply and, ultimately, price.”
There also is a risk premium on each barrel of oil because of the geopolitical instability in oil-producing countries — especially in the Middle East, which is a major oil supplier and “is extremely volatile,” and the possibility of weather related supply disruptions. One estimate is that the risk premium could be adding $20 to $25 to every barrel of oil.
A weak dollar is another reason for the soaring diesel prices in the US. So is the huge amount of speculators' dollars, up nearly 50% from 2003, being invested in crude oil holdings, Headley said. “We believe this increased speculation in crude oil is adding to the increase in oil prices.”
There is no diesel price relief in sight, he said, citing the Energy Information Administration's latest forecast, which predicts the price for diesel will not fall below $4.73 per gallon through the end of the year
The economic stimulus tax rebate checks have provided a boost this year, but this is fading, and ATA expects a contraction in economic activity in the final quarter of this year, concluded Headley. The first quarter of next year “will be flat at best, with no sustainable recovery until the second and third quarters.”
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