posted on Jan, 11 2016 @ 10:42 AM
a reply to: dogstar23
The trucking industry depends on recovering revenue through fuel surcharges, as I remarked on earlier. The average carrier is operating on a 2% profit
margin, which wouldn't naturally give enough room for sustaining severe fuel price fluctuation as we commonly see in the markets. Typically, that
surcharge works like a rebate: carriers and owner/operators are reimbursed a certain amount of money per mile they drive in order to help cover fuel
costs. After the price of fuel crashed, the industry is not only no longer receiving a rebate, but is paying a penalty per mile. The industry now
"owes" for the reduction in fuel prices, while simultaneously shippers are willing to pay less because they know fuel prices are down. The spot market
prices for dry freight has been crashing steadily alongside the fall of fuel prices. So, assuming a carrier or operator is surviving on a 2% profit
margin, and assuming that carrier is generating an average revenue of $2 per mile, then a fuel surcharge of just four cents owed could consume that
companies entire profit.
Without even considering the surcharges, the fuel market has become less predictable since the crash, resulting in companies being less able to
predict when and where to best fuel their trucks, meaning they're now spending more on fuel compared to the national average than prior to the crash.
Or, they're now expending more resources in order to determine fuel stops with the same efficiency as before. Aside from even that, now many carriers
are having to extend more resources on negotiating with potential customers because they want cheaper rates since fuel is cheaper. Many carriers are
finding themselves unable to come to adequate agreements with shippers, and so they're losing contracts.
A drop in fuel prices can be a good thing for the trucking industry, to a point, but it's passed that point.
edit on 11-1-2016 by Navarro
because: (no reason given)