Managing fuel expenses.

The nation's trucking companies live or die on how well they control their operating costs, and today's historically high fuel prices are making it difficult for many of them to manage their costs effectively. Since a strong correlation exists between diesel fuel prices and trucking company

The cost of fuel represents the second-highest operating cost of any North American truck operator, exceeded only by costs associated with wages and benefits. When prices are stable, fuel remains a controllable and manageable expense. But when prices climb rapidly, trucking firms must focus on reducing fuel consumption.

Since last fall, diesel fuel prices have increased substantially and--at an average retail price of $1.48 per gallon in mid October--prices were more than 10 percent above year-earlier levels. In this challenging economic climate, trucking companies face a difficult challenge of raising freight rates to compensate for the rise in energy prices. That explains why fuel economy, always an important operating-cost issue, has become absolutely critical.

According to Jordan Feiger, vice president and general manager of the Heavy Vehicle Center at International Truck and Engine Corporation, an analysis made by his company regarding the historical impact of diesel fuel prices on trucking company bankruptcies reveals that per-gallon prices in the range of $1.40 represent a danger zone for fleet owners, all area in which they must remain vigilant with fuel costs. Further analysis reveals a certain lag effect in which trucking company bankruptcies occur five or six months after a peak in fuel prices. The combination of these phenomena means that bankruptcies actually decrease as diesel fuel prices increase above $1.40 per gallon, but then increase as fuel prices decline and pass below $1.40 per gallon. See Figure 1.

[FIGURE 1 OMITTED]

Right now, prices are hovering markedly above that $1.40/gallon range, which means even the smallest adjustments or steps taken to save fuel can mean the difference between profit and loss, or even between survival and bankruptcy.

Assuming that further improvements to fuel consumption don't occur, the current level of diesel prices has raised the average fuel cost per mile by two cents to nearly 24 cents. And, as Feiger points out, in an industry where operating ratios easily rest in the mid-to-upper 90s, two cents a mile can spell the difference between profits and red ink. See Figure 2.