An Economy Contradicting Itself

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.

a reply to: dogstar23

I do believe some prices are being kept up because the market will bear it, while others, especially commodities are going down. A gallon of milk is down to $1.57 now, for example.

Do you live right next to dairy farm or something?? I have not seen the price for a gallon of milk dip below $3 for at least 5 or 6 years now, with the exception of occasional promotions from CVS or walgreens which bring it don to like $2.79.

Where is all this cheap milk I keep hearing about?

a reply to: AmericanRealist

There are a handful of dairies in Michigan, including the Kroger dairy in Livonia (I think the biggest in the state). Kroger still has milk for about $2.50/gal, same with Meijer and Costco. I've seen it on sale for $1.99/gal a couple times over the last two or three months too. So I'm not sure being near a dairy has as much impact as you'd think.

Up in the UP we were happy when it went on sale for two for $5; otherwise it was regularly around the 3.50/gal you mentioned.

a reply to: Navarro

There's more to transportation costs than fuel prices. It's great that fuel prices have tanked, I love paying half what I used to a week for fuel. I only paid $1225 for fuel last week. I've had weeks where that has been over $2,000 a week.

If you look into the transportation market in the last few months, it's the worst I've ever seen. There are trucks sitting days on end waiting for loads in what are normally high freight markets this time of year.

In October, when we are normally seeing the Christmas freight starts picking up, we had brokers putting out word that if you see a load out of Laredo, no matter how bad, grab it and run because no one knew when the next load was coming. Now there are trucks sitting in California as long as four and five days waiting on produce loads.