Torn between two crises

In the days following Hurricane Katrina’s landfall, diesel prices set two records – the highest recorded national average weekly price ($2.898 a gallon) and the largest one-week gain (30.8 cents). The price at the end of September is 39 percent higher than a year ago and 96 percent higher than in the same week in 2003. Diesel has stood at or above $2 a gallon in 42 of the last 52 weeks. And yet, until Katrina hit, few trucking executives seemed to be treating the situation as a full-blown crisis – certainly not to the degree they worried about insurance several years ago.

Why not? One possibility is that carriers are too busy recruiting drivers and covering customers’ loads to worry about a problem they feel largely powerless to control. The insurance crisis hit when freight was soft, so there was more time for hand wringing.

Fuel surcharges are another factor. Tight capacity has helped carriers command healthy surcharges. But someday the business cycle will head south, and customers may balk at surcharges – possibly at a time when fuel is more expensive than it is today.

Unfortunately, neither price nor surcharges are truly within your control. Focus instead on fuel economy through the tools available to you, such as spec’ing, maintenance and driver performance. While fleet owners recognize that drivers are key to fuel savings – speed, out-of-route mileage, idling, acceleration, braking and progressive shifting are essentially within the driver’s control – few carriers have had the guts to get tough with them. That’s probably why many fleet executives haven’t focused enough attention on fuel economy.

Technology certainly allows you to manage drivers. You can govern speed, download driving performance data from electronic control modules and track vehicle location. But just because you can do those things doesn’t mean you will. Due to competition for drivers, many carriers have been soft on driver practices that waste fuel. They settle for training indifferent drivers on fuel economy or for offering small incentives that don’t really get drivers’ attention.

The dramatic rise in fuel prices during August and September should force trucking executives to rethink priorities. But even if you accept the urgency, the question remains: How do you get drivers to help? If you get tough on drivers’ speed or idling, you might lose them. You have then accomplished little other than higher turnover. Training is a nice idea, but will drivers really care?

Compensation for improved fuel economy is logical, but this, too, is a complex proposition. Some carriers avoid fuel bonuses because many drivers would earn them based on current driving habits. So the cost savings are offset to some degree by money wasted on ineffective bonuses.

Perhaps the solution lies in simplifying compensation. Rather than offer an add-on bonus, why not offer varying pay rates based on overall fuel economy? Suppose your pay per mile is 40 cents and average fuel economy is 6 mpg. At $2.80 a gallon, the difference between 6 mpg and 7 mpg is 6.7 cents per mile. Therefore, you could offer 45 cents per mile to drivers who maintain 7 mpg and still come out ahead. At 7.5 mpg, you could offer 49 cents per mile and still win.

But what if the price of diesel falls? Fuel would have to drop below $2.10 cents a gallon before a 5-cent difference in pay between 6 mpg and 7 mpg would cost you money. Do you really expect this to happen anytime soon?

This approach works best, of course, if all your trucks are spec’d the same and run the same operating profiles. Otherwise, you will hear complaints from drivers over fairness. But you always get complaints, right?

Accompanying this issue of CCJ is a special report on fighting fuel costs that we hope will help bring money to your bottom line. But you can’t win the battle unless you can use carrots or sticks to get drivers to help.