With any luck, trucking companies have seen the worst of the latest turmoil in diesel prices. Although prices inched up to a record in July, the real surge occurred between mid-February and the beginning of June when the national average retail price soared 44 percent. Prices rose almost 55 cents in May alone. But diesel was far less volatile in the couple of months that followed, and for the week ended July 28 it dropped 11.5 cents to a little more than $4.60.
The fuel price crisis and general economic weakness forced hundreds of carriers out of business. Given the lag between buying the fuel and getting the surcharge with the freight payment, many carriers probably have only recently felt an easing of the pain as incoming surcharges began to approximate current fuel costs.
Fleet owners know better than to take comfort in the uncertain trend toward more stability in fuel prices. If there’s any silver lining to the recent turmoil – other than a margin-raising drain on trucking capacity, of course – it’s the acceptance of improving fuel efficiency as part of the corporate culture. Fleets are spec’ing aerodynamic trucks, anti-idling devices, low rolling-resistance tires and a host of other fuel-stingy options. As CCJ Senior Editor Aaron Huff explores this month, some are even shaving weight from their equipment principally to save fuel rather than maximize payload.
Regardless of equipment specs, there’s big money in how the truck is operated. Start with idling. For illustration purposes, assume 8 hours of discretionary idling a day for 20 days a month. At a fuel burn of a gallon an hour and a diesel price of $4.60, that’s 160 gallons and $736 for just one truck in a month.
Fleets are slowing their trucks down as well. The conventional wisdom is that for every 1 mph reduction there is a tenth of a gallon improvement in fuel economy. Being conservative, however, assume that slowing a truck from 68 mph to 65 mph represents a 0.2 mpg improvement. At 10,000 miles a month and $4.60 a gallon, the difference between 5.6 mpg and 5.8 mpg, for example, is $283. If you could eliminate idling and maintain the lower speed, that’s more than $1,000 you could save for each truck every month.
Many fleet owners have long focused primarily on the fuel efficiency of the equipment itself and on how drivers operate it. As fuel prices have soared, however, more carriers have come to recognize the key role the sales and operations departments play. Truckload carriers might once have seen a deadhead of 100 miles, for example, as a regrettable but acceptable cost in order to serve a good customer. But today’s diesel prices dig deep into carriers’ margins when significant empty miles are involved. Likewise, out-of-route miles take their toll on overall fuel efficiency.
Assume that 7 percent of your miles are empty and 5 percent are out of route. These are reasonable and probably conservative numbers for most truckload carriers. That means a truck running 10,000 total miles a month travels 1,200 miles with neither revenue nor fuel surcharge reimbursement. Based on the scenario above – 5.8 mpg and $4.60 diesel – that’s $952 in uncompensated fuel usage. If your customers pay you based on household goods miles, you could add another 3 percent to the “wasted miles” calculation. That’s another $238.
Realistically, you will never eliminate the entire 1,500 miles and $1,190 in fuel costs for every truck in your fleet, month after month. But it’s critical that you recognize the impact of empty and out-of-route miles and factor these costs into your contract negotiations and your dispatch decisions. Managing fuel costs involves more than your fuel buyer, your equipment manager and your driver. Major challenges in trucking, such as safety and driver retention, usually require holistic solutions. Fuel is no exception.