Continued High Diesel Prices Could Alter Recession-Proof Trucking Industry

Demand for truck drivers has never been higher but fuel costs and rising expenses could prompt an unwelcome industry shift.

The price at the pump for diesel recently set record highs, prompting freight carriers and owner-operators to seek out the cheapest possible fuel. While large operations have been relatively successful in passing along this cost of doing business, small transportation operations appear to be getting stung.

“We’re all kind of rolling the dice,” Tim Smith, a Michigan small sand and gravel delivery fleet operator reportedly said. “I’m in survival mode right now. If there’s no profit, there’s no point.”

The average small fleet purchases upwards of 80,000 gallons of diesel annually, typically the largest operating expense. Smith has been moving sand and gravel under a state highway contract. After negotiating a flat fee for his efforts, rising fuel costs ate into what seemed like a good-paying deal. Smith’s sentiment trickles across the country’s small fleets and some owner-operators.

Companies that cannot pass along the sudden spike in fuel and operating costs are being pushed to the brink. Michigan Trucking Association chairman Brian Hitchcock recently went on the record indicating unreasonable fuel prices and other costs could start to sideline some mom-and-pop trucking organizations. And Todd Spencer, president of the Owner-Operator Independent Drivers Association, expressed concern an economic slowdown could exacerbate these issues.

“We know the current demand will slow down, and when that happens, we’re going to have trucks sitting everywhere and drivers with nothing to do. Margins can get really tight for little guys, quick,” Spencer reportedly said.

The same may not necessarily hold true for large fleets and mid-sized operations tied to major corporations. For example, Tom Hilker works with his parents running a family-owned trucking company in Wisconsin that enjoys a contract with Kroger supermarkets. Although he confirms fuel prices hurt at fill-ups and across the economy, Dennis R. Hilker Trucking has reportedly been able to pass the heightened expense along.

“It’s not affecting us to a huge degree,” Hilker reportedly said. “We have a lot of standard accounts that have a surcharge built-in, so that every time gas prices go up and down, the fees go with it.”

The logical outcome of unsustainable diesel costs is unlikely to result in a trucking recession, as some fear. Anyone who follows the national trucking news recognizes that large freight transportation organizations are gobbling up small, family-owned companies. Even before inflation and energy costs rose, the industry trend has been more mergers and acquisitions.

Larger freight carriers generally possess stronger bargaining power, decreased overhead, and an improved ability to pay qualified truckers higher salaries. There’s no shortage of freight-hauling work. But persistently high diesel prices could accelerate a trend of large outfits buying up family-owners trucking outfits.

Sources: thehill.com, nbcnews.com