First, It Was Driver Shortages; Now It’s Increased Fuel
One of the most talked about issues plaguing the trucking industry in years was that of truck driver shortages. The industry now faces another hurdle that poses inadvertent consequences to the already prevalent issue of driver shortages: rising fuel costs.
The early days of the pandemic increased consumer demand, which helped pave the way for drivers to enter the trucking industry, but also for those already in the industry to go independent. It has been estimated that more than 130,000 new trucking fleets have entered the market since the start of the pandemic.
As of June 13, 2022, the average cost of diesel fuel throughout the United States was $5.718 per gallon. The price has just about doubled compared to a year ago. Typically, when it comes to increased fuel prices, contract businesses within the trucking industry include fuel surcharge agreements to account for any fuel cost increases. Those costs are eventually passed through the supply chain and back down to the customer. For the larger, well-capitalized trucking company, these fuel surcharge agreements work well, as those companies find ways to offset the increases.
When it comes to smaller trucking companies and independent owner-operators, with many drivers buying fuel at the pump prices, these agreements are not always aggressive enough, and the markets they are operating in do not always compensate for the increased costs of fuel. The problem is then left to the drivers themselves – and they become stuck between a rock and a hard place. Drivers can try to increase their prices to haul loads, but they risk losing out on the opportunity, as the customer will find someone else to haul for less. If the driver agrees to the load value, their profit opportunity diminishes as the increased cost of fuel cuts into their profits. If these drivers are no longer making profits, they are more likely to leave the industry, which is already struggling to deal with driver shortages.
Unfortunately, the issue of when these fuel prices will mellow out is unpredictable. While there are some places where the fuel prices have started to gradually decrease, there are many places throughout the country where the average cost of diesel fuel exceeds $5.00 per gallon. The rise in fuel prices, coupled with the volatility of the market, is forcing many of the smaller trucking companies and independent owner-operator drivers into a dilemma: will they be able to continue taking profit cuts or will they be forced to park their trucks or sell out to larger companies for survival?
Written by associate Samantha Schilling.