The recent surge in the cost of heating oil, diesel fuel, and gasoline in the United States has had significant impact on many sectors of the U. S. economy, but most importantly it has had quite a devastating affect on the trucking industry. This is important due to the fact that nearly “70% of U. S. communities rely solely on trucking for their supplies” (“ATA” 23). If the government continues it’s trend of non-intervention and refuses to place pressure on OPEC, the prices will continue to soar well over the two-dollar mark, and cause the trucking industry as a whole to shut down bringing the U. S. economy to a grinding halt. What is the reason that gasoline and fuel prices are so high? Most people believe it is because of OPEC raising the price of oil. This answer is only partially true. In fact, there are several others factors that must also be taken into account when determining the cause of high fuel prices in the United States and in other parts of the world. The main reason for the price increase is that OPEC (Organization of Petroleum Exporting Countries) has decided to cut back on its oil production.
What is the reason for this? Simply stated, OPEC knows that they have the United States under their control in terms of what price they want to sell crude oil to us at, and how much they want to ship. With the present economic prosperity in the U. S. , it didn’t take long for OPEC to seize the opportunity to make more money by cutting production of crude oil, and thus forcing consumers to pay more for fuel. Just how much higher are prices you ask? Crude-oil prices in early March hit $34 a barrel, while a year earlier it was selling for $12 a barrel, which is nearly a 75% price increase since last year. This equates to an additional 48 cents a gallon” (Logistics Management 15). Another key cause to the price inflation issue is the extended period of bitterly cold weather that loomed in the northern and midwestern parts of the U. S. throughout the winter months. This led to an “increased demand in home heating oil, which is widely used in the region and is virtually identical to diesel fuel” (Lang1).
This increased demand for fuel coupled with the restrictions on exported oil allowed OPEC to jack up their prices an exorbitant amount in a relatively short period of time. A third cause of the high prices is that the types of cars and trucks we are driving today use a lot of gasoline. Recent figures show that more and more Americans are tending to purchase “less fuel efficient sport-utility vehicles, trucks, and minivans as opposed to cars” (“SUV” par. 4).
A clear example of this can be seen by The Chrysler Corporation’s sales of Dodge Ram pickup trucks. Once the “11th best selling vehicle, it is now the 4th best seller; above the more fuel efficient Ford Taurus and Honda Accord” (Phillips 22). The EPA (Environmental Protection Agency) and EIA (Energy Information Administration) both play key roles in the types of fuel we can run in our cars and trucks and thus they indirectly play a role in the overall “price package” that we consumers have to pay.
When fuel arrives in the United States about 95% of it is in its natural state; that is crude oil. It is then pumped or shipped to refineries where certain qualities are achieved such as diesel fuel, kerosene, gasoline, and heating oil. The EPA’s role is to regulate the amount of additives and other chemicals that are added to the fuels, which give them certain cleansing and lubricating properties. An important and very controversial additive in diesel fuel is sulphur. All grades of diesel fuel, No. 1 (kerosene), No. on-road fuel, and No. 3 off-road fuel, have sulphur in them to keep the engines burning clean and to allow the fuel to burn properly (diesel fuel is almost non-flammable in it’s virgin state without additives). Sulphur however is a dangerous pollutant and has very damaging affects on the ozone layer, thus it is the EPA’s responsibility to step in and decide on the allowable amounts of sulphur in fuels. On October 1, 1993 the EPA stated; “No. 2 fuel cannot have more than . 05% sulphur per gallon” (McEwen 34).
This may not seem like a big deal but to the refineries that produce the fuel it is a very big deal because all of their equipment would have to be changed to allow for the “desulphurization” of the fuel. Though the refineries argued against it saying less sulphur would damage engines the EPA upheld their decision. Thus the refineries had to put in new equipment, which in the long run ended up tacking on “an additional $ 3. 9 billion to already high fuel costs” (“Cutting Sulphur” 13). One of the industries hardest hit by the fuel cost increase is the trucking industry.
Truckers depend on diesel fuel as their lifeblood, without it the rigs and our economy would come to a screeching halt. There is no single affect of high fuel costs on every driver and company; rather there are many varying degrees to which they are all affected. To large companies, it is more of an inconvenience than a problem because they do such a large amount of business that the slight change in the price of diesel is almost negligible in comparison to their revenues. For smaller businesses it is a whole different ballgame.
These companies are constantly fighting and working their figures to get business because it is survival of the fittest. Whoever has the lowest rate per pallet or by the truckload is usually the one who gets the contract and with this additional expense for fuel it makes it very difficult to cut a good deal for a customer. “70% of the trucking industry is made up of carriers with six or fewer trucks. These small, often family-run businesses arein huge debt to their fuel suppliers and are at risk of being cut off” (“ATA” 24). The independent trucker, a. k. a. wner operator, feels the most drastic affect of steep fuel prices due to the fact that he is the owner of the truck and has to provide all maintenance for the truck including diesel fuel. Unlike the large and small companies who run their own rigs, the independents simply cannot afford to pay the extra amount it takes to get fuel. This is simply due to the fact that they have to make truck payments, pay their insurance premiums, pay for tires, oil, and other maintenance items on the truck, as well as pay for the fuel which is the “second largest component of truck operating costs, after labor” (Ontruck, par. ). For many it is just too much to tackle when they are “already operating on razor-thin margins” (Bradley 3). “Independent drivers say they are often unable to pay for their fuel, and many have simply parked their trucks to wait out the situation. Some may have to quit trucking forever” (Lang 35). The trucking industry is not the only community to feel the pinch. Many other industries such as bus companies, airlines, and especially consumers in general are affected by the high fuel costs.
Any company or individual that uses vehicles running on petroleum products are going to be affected to some extent. Bus companies and airlines are affected in the same ways as the trucking industry. Consumers; however, take a double hit from the situation. If they drive they have to pay the higher fuel prices like the truck lines and bus companies, but they also get stuck paying more for their groceries, lumber, and anything else they purchase that gets shipped by truck, train, or airplane because of the extra fuel costs handed down from the shippers.
So what is being done to stabilize fuel prices and to combat losses incurred by trucking companies and others? Trucking companies have had to take it upon themselves to provide a means to stay in business and provide temporary defense against high fuel prices and a government that won’t let out fuel reserves by placing fuel surcharges on all their deliveries. The premise of placing a fuel surcharge on all deliveries made by a trucking company or owner operator is quite simple.
It basically offsets the company’s costs by increasing its revenues. When companies set up pallet and TL (trailer-load) quotes, they take into account item weight, distance of delivery, wages, and truck maintenance (including fuel costs). They also take into account the profit they want to make on the haul. When prices are raised on the maintenance part of the equation, profits would and do suffer, so to combat this freight companies include a fuel surcharge of x dollars in every quote they send to a prospective client.
This way the company still makes a profit and can remain in business. “Something has to give and if the shipper wants to ensure that the same level of transportation service offering is available in the future as now, then there will have to be price adjustments. It is not realistic to expect the industry to continue to absorb all cost increases on its own” (Ontruck, par. 2). Airlines and bus companies are also equating the extra fuel costs into their ticket prices.
The federal government continues to refuse to step in and help out the trucking industry and consumers by releasing some of the United States’ oil reserves and won’t put OPEC into the spotlight to make them increase their production of oil. Their so-called motives are that we can’t afford to use up some of our oil reserves because the fuel shortage is not a dilemma yet, and we may need the fuel more as time goes on. How can the government say that it is not a dilemma? Fuel prices have nearly doubled over the past year!
Do they plan on waiting until the affects of their sluggishness brings the whole United States into an utter state of ciaos? As it was shown earlier nearly every activity of our day to day lives is governed by vehicles and machines using petroleum products, from the food we eat, to how we heat our homes, thus as the beginning stages of economic downturn begin, it is quite obvious that the government is not doing enough to give U. S. citizens, and companies our right to get a fighting chance of keeping our economy the solid, prosperous establishment that we see today.