Oil speculation draws scrutiny

A bill (S. 3059) introduced last month in the U.S. Senate would allow states to increase weight limits on federal highways from 80,000 pounds to 100,000 pounds when diesel prices are above $3.50 per gallon. The waiver, sponsored by Maine’s U.S. senators Susan Collins and Olympia Snowe, would remain in effect for two years, and the Government Accountability Office would study the effects on safety in the states participating in the program.

Ontario’s legislature approved a measure mandating speed limiter use on most large trucks to cap speeds at 105 kilometers per hour (65 mph). The use of speed limiters could be implemented as early as this fall, followed by a six -to 12-month education period. Supporters of the proposal had cited both safety and environmental benefits.

Department of Transportation last month said 27 Mexican carriers and nine U.S. carriers were authorized to operate under the crossborder demonstration project. The U.S. Court of Appeals for the Ninth Circuit has yet to rule on challenges to the program by safety advocates and others on several grounds, including the department’s interpretation that a congressional ban on establishing a pilot program did not apply because the program already existed.

Freight Transportation Services Index was unchanged in April from its March level, the Department of Transportation’s Bureau of Transportation Statistics reported. Since an increase in January that was the largest in two years, the freight index has failed to advance for three consecutive months.

Perkins Logistics has purchased the assets and ongoing customer relations of Indianapolis-based Vogel Specialized Hauling.

Network F.O.B. – an Eagan, Minn.-based freight brokerage company – said it has completed the acquisition of Gale Transportation Services Inc., based in Winchester, Va.

Capital Beltway Funding Corp. issued $589 million in tax-exempt private activity bonds to help finance the $1.9 billion, 14-mile I-495 Capital Beltway High Occupancy Toll (HOT) Lanes Project in Northern Virginia. The project – the first to use private tax-exempt financing authorized by Congress in 2005 – will add two variably priced HOT lanes on each side of the Capital Beltway for the 14-mile stretch.

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Department of Transportation allocated $133.3 million under its Urban Partnerships Program to battle congestion along the I-35W corridor in the Minneapolis-St. Paul area. The funds will be used to convert existing carpool lanes on I-35W to allow single-occupant drivers to also use them if they pay a fee, purchase 26 new buses, speed wait times for buses at signals and build park-and-ride facilities.

Transportation Secretary Mary Peters announced several initiatives to reduce collisions between motor vehicles and trains. The Federal Railroad Administration is pursuing research and development into low-cost warning and detection and will issue a revised guidebook to assist states and communities in closing unnecessary crossings and improving the safety of others.

Performance Transportation Services, an Allen Park, Mich.-based car hauler that operated more than 1,000 trucks under divisions, shut down June 13 after failing to reach agreement with its Teamsters bargaining unit. PTS, which had been operating under backruptcy protection, had received approval from the bankruptcy judge on June 4 to reduce the wages of Teamster-represented employees by 15 percent for two months. The Teamsters commenced a strike on June 9.

In the midst of an unprecedented surge in crude oil prices in recent months – including an $11-a-barrel jump in just one day on June 6 – the U.S. Commodity Futures Trading Commission (CFTC) announced a series of steps aimed at ensuring commodities traders aren’t driving up crude prices through fraudulent market manipulation. CFTC said the measures would expand the amount and quality of information received from energy traders.

Since mid-February, the national average diesel price has risen nearly 45 percent, and experts blame skyrocketing crude prices. Adding to the suffering for trucking companies is the notion that energy prices are soaking up money that otherwise might be spent on goods that must be transported by truck.

“The recent dramatic increases in the price of crude oil traded on futures exchanges make these efforts paramount,” CFTC said in a statement on May 29. “The implementation of today’s measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud.”

The initiatives CFTC announced May 29 include greater international surveillance of crude oil trading. The commission struck a deal with counterparts in Europe and the United Kingdom to share information on energy commodity contracts with U.S. delivery points. CFTC also is taking various steps to gather additional information from the U.S. energy markets – including the relatively new phenomenon of index trading in futures – and, thereby, increase transparency and discourage fraud and abuse. And the commission said it was continuing an investigation launched in December 2007 of practices surrounding the purchase, transportation, storage and trading of crude oil and related derivative contracts.

With crude prices still rising and new investors coming into the market, CFTC announced further steps in early June. The commission formed an interagency task force representing CFTC, the Federal Reserve, the Securities and Exchange Commission and the cabinet departments of Agriculture, Energy and Treasury to probe developments in commodities markets. The task force will examine investor practices along with fundamental supply and demand factors, and study the role of speculators and index traders in the commodity markets. CFTC offered no specific timeframe for the investigation, but it promised to complete and make public its work “as expeditiously as possible.”

Also in June, CFTC hosted its second conference on international energy market manipulation. The conference brought together enforcement officials from around the world who have responsibility for prosecuting market manipulation to share experiences and observations of trends and successful techniques used to detect, deter and prosecute illegal activity.

More than just the fundamentals
Martin Regalia, chief economist for the U.S. Chamber of Commerce, believes that a large chunk of today’s crude oil price is based on trading that isn’t tied to market fundamentals. Speculation has pushed an $85 barrel of oil to $135, Regalia told attendees of the CCJ Spring Symposium last month in Tuscaloosa, Ala. Basically, oil is drawing investors’ money because returns in the equity, credit and money markets are so weak, he argued. “There are not a lot of plays in the other speculative markets,” Regalia said. “Until that speculator is punished, you’re not going to see these prices go away.”

Regalia doubts that oil would drop to $100 per barrel before the end of the year. “How do you cause the speculator to back off some?” he asked. “That’s a problem we’ll be dealing with the entire summer.” He estimated that the entire stimulus package enacted earlier this year has been offset by high fuel prices. (For more on Regalia’s views on the economy, see coverage of the CCJ Spring Symposium on page 66.)

The American Trucking Associations applauded CFTC’s efforts to help burst the bubble it believes has formed in the petroleum markets, but the association is calling for more from Congress. Along with 18 other business and consumer groups and unions related to transportation and travel, ATA urged House and Senate leaders to enact or encourage near-term measures to address irrational oil prices.

“Absent an immediate reform in the widely-speculative energy commodity futures markets, oil prices worldwide will continue to surge, clamping down even harder on the U.S. economy,” the associations said in a letter to the top Democratic and Republican leaders in Congress. “Leading energy experts across the country agree that recent, unprecedented jumps in crude oil prices are due, in large measure, to rampant speculation in the energy commodities markets.”

The groups said that on the day of the June 6 spike, speculators traded 22 barrels of “paper oil” for every single physical barrel of oil consumed. “Sophisticated ‘paper’ speculators who never intend to use the oil are driving up costs for consumers and making huge profits with little to no risk. Having abandoned the stock market, these aggressive traders are manipulating the energy market to their sole advantage.”

ATA and the other groups said that CFTC or Congress itself should execute several reforms to restore integrity to the petroleum market, including:

· Fully closing all loopholes, including the “Enron Loophole” and “Swaps Loophole” that allow institutional investors to avoid limits on the size of their investments;
· Ensuring all energy traders, including those trading on foreign boards of trade, are subject to the limits imposed on U.S. exchanges; and
· Increasing margin requirements and imposing appropriate disclosure/financial requirements on institutional investors.

Meanwhile, by late June, crude oil futures were trading at about $135 a barrel, up from about $95 a barrel at the beginning of the year.

Supply-side solutions
At the same time CFTC is focusing on market speculation, the Bush administration also is urging measures to increase domestic oil production. In a June 18 speech, President Bush called on Congress to:

· Expand oil exploration in the Outer Continental Shelf, which he said could match current domestic production for almost 10 years;
· Allow oil shale leasing on federal lands. Oil shale can produce oil when exposed to heat or other processes. Some estimates are that the Green River Basin of Colorado, Utah and Wyoming holds the equivalent of 800 billion barrels of recoverable oil;
· Permit oil exploration in the Arctic National Wildlife Refuge; and
· Expedite the refinery permitting process to allow for an expansion of refining capacity.

“With these four steps, we will take pressure off gas prices over time by expanding the amount of American-made oil and gasoline,” Bush said.

DOT eyes relief for border congestion
The Department of Transportation announced last month that it is seeking innovative ways to fight congestion at some of the nation’s busiest border crossings. “It’s time to put an end to the kind of delays that keep families and businesses at a standstill at our borders,” Transportation Secretary Mary Peters said.

Peters said DOT would select at least two projects each along the Canadian and Mexican borders. She said the effort was needed because over the last two decades, the value of freight shipments among the United States, Canada and Mexico has risen by 170 percent, growing an average of 8 percent annually and leading to longer delays at the crossings.

In 2007, U.S.-bound traffic from Canada experienced delays of up to three hours at many crossings, costing businesses more than $14 billion annually, Peters said. On the Mexico side, San Diego County alone loses $271 million in annual revenue due to delays at the border, she said.

Verizon’s Dikijian receives top NPTC award
Haig Dikijian, safety program director for Verizon Logistics, was honored recently with the highest award given to an individual by the National Private Truck Council – the Private Fleet Executive of the Year. Dikijian, a Certified Transportation Professional, has worked for the same company for more than 43 years – although that company has been known over that period as New York Telephone, Nynex, Bell Atlantic, GTE and now Verizon.

NPTC honored John Thompson as its Fleet Safety Professional of the Year. Thompson, hazardous materials specialist for Matheson Tri-Gas, has more than 43 years’ experience in the industry with Airco Industrial Gases, which later was acquired by BOC Gases.

The Fleet Member of the Year Award went to John Hinton, transportation manager for Harris Teeter. Previously, Hinton was the director of transportation for a major automotive supplier for 27 years and has been in private-carrier management for more than 31 years.

Brian McLaughlin, executive vice president for PeopleNet, received the Allied Member of the Year Award. Since 2001, McLaughlin has been leading marketing, product development, communications and inside sales programs.

The NPTC Membership Development Award honored Greg Mathein, formerly manager of traffic and transportation for Senco Products. Mathein has worked in private fleet management and transportation for more than 39 years.

Daniel Smith of Smart & Final received the inaugural Daniel P. Smith Life Achievement Award, given to an individual who has made significant leadership contributions to NPTC in helping advance the goals and objectives of the council.

NPTC presented its F.L.E.E.T. Leadership Awards at its annual meeting in Cincinnati. Since 1990, NPTC has presented the F.L.E.E.T. Awards – which means For Leadership, Enterprise, and Excellence in Trucking – to recognize individuals who have made significant contributions to NPTC, their profession and the private trucking community.

CCJ Hotspots: Illinois and Alabama again
In May, Illinois continued its string of four consecutive appearances in the CCJ Hotspots, while Alabama made it three in a row. Completing the trio was North Carolina, which replaced Ohio.

In cooperation with freight-matching leader TransCore, we highlight the nation’s three hottest states – those where the outbound load-to-truck imbalance is most in favor of the carrier. We then pair these states with market rate data to identify the three best outbound paying lanes by each of the three most popular equipment types – van, reefer and flatbed. And like the three origin states, all of these destination states have positive load-to-truck ratios. Load-to-truck ratio and market rate data are courtesy of TransCore. The goal is to highlight not only the best states for spot-market freight but also the best outbound opportunities from those states.