Lower Fuel Prices Raise Shipper Demands

Record low fuel costs may sound like a boon for trucking, but some carrier executives say diesel prices have been met by demands from shippers for reduced freight charges.

Retail diesel prices have tumbled almost 7 cents a gallon over the past 10 weeks, with the national average standing at 97.2 cents on Dec. 14, according to the Energy Information Administration.

Shippers are paying close attention to this remarkable trend, and now some of them are telling carriers that contract clauses related to fuel price fluctuations should work both ways. When fuel costs fall, trucking rates should too, they say.

“A lot of (shippers) have come to me and said, ‘We want some of that money back,’ “ said Mac McCormick, president of Best Way Express, Vincennes, Ind.

Some trucking companies apparently are responding, according to Donald A. Orr, president of Roberson Transportation Services, Champaign, Ill. “There are a lot of customers asking for percentage decreases. A lot of people are giving it back,” he said.

But not everyone. Leroy McConnell, regional transportation manager for Schuller International, Defiance, Ohio, said his company has an amendment in some of its carrier contracts that triggers a rate surcharge when the Department of Energy’s weekly fuel price tops $1.20. The reverse does not apply when the price of diesel goes down, he said.

However, Mr. McConnell uses lower fuel prices as a negotiating wedge. “We haven’t gone after guys to reduce prices, but we have used it for ammo when they have come after us looking to increase costs,” he said. Schuller International, a machinery producer, has 270 carriers under contract.

Truckers quickly point out that prepaid fuel contracts and rising expenses in other cost sectors — particularly related to labor, such as driver pay and health insurance — cancel out some of the benefits of low diesel prices. “Everything is going up except fuel, and that’s across the industry,” said Mr. McCormick, who is also chairman of the Truckload Carriers Association.

In the past, Mr. McCormick said, his company’s contract with shippers stipulated a fuel surcharge that kicked in when the price of diesel reached $1.10. After a series of price spikes in the last decade, the surcharge was amended to take effect at $1.18. Now he wants some kind of quid pro quo from shippers that insist on a rate reduction.

“If we’re going talk about discounts, we want to get that (surcharge trigger) back down to $1.10,” Mr. McCormick said.

For the full story, see the Dec. 21 print edition of Transport Topics. Subscribe today.