Transportation news: Major steps are needed to remedy oil and gas situation
Jeff Berman, Group News Editor -- Logistics Management, 9/24/2008
ARLINGTON, Va. and WASHINGTON—A trucking industry official called on the White House and Congress this week to implement a comprehensive energy plan that will ensure an affordable supply of oil and limit the effect of rising fuel costs on the US economy, according to the American Trucking Associations (ATA).
“It is clear that our energy crisis is a complex problem that requires a comprehensive solution,” said Barbara Windsor, President and CEO of Hahn Transportation of New Market, Md., testifying before the Senate Energy and Natural Resources Committee. “This dramatic year-over-year increase in the cost of diesel fuel is harmful to the trucking industry and the U.S. economy. The fuel crisis we face today is severe.”
Hahn added that the US needs a comprehensive energy plan that decreases demand for fossil fuels, increases domestic energy production and ensures transparency in the petroleum markets. A plan is vital, according to Hahn, as the trucking industry is currently on pace to spend $159.9 billion on fuel this year. This tally tops 2007 by $47 billion and doubles 2004’s trucking fuel bill.
Even though oil prices are down from record levels that approached nearly $150 per barrel earlier this summer and diesel prices are below the $4 per gallon mark for the first time in ten weeks, the ongoing issues shippers and carriers have experienced from rapid price shocks have not subsided. Various industry experts have told LM much more work is needed to ensure that things get on more solid footing forward.
“What we what we are suffering from and will suffer from for years to come in my estimation is a non-existent energy policy that creates a condition under which chaotic events have a disproportionate impact on our oil and fuel prices,” said Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies. “We as a country are suffering from is the absence of an energy policy—a comprehensive one that not only supports offshore drilling but also conservation and smart utilization of the energy resources we have. So the result of that is you have an era of uncertainty and you have companies that will not make business decisions involving billions of dollars.”
Another option for reducing fuel costs and conservation is increasing productivity within truck fleets by trucks with multiple trailers up to 330,000 pounds 525 feet long, according to Tim Radbourne, President of Radbourne Consulting in Adrian, Mich.
“This is the silver bullet we have, if there is the political will to do it,” commented Radbourne. “It would substantially cut the rates shippers pay for loads. If you have one truck pulling two trailers, theoretically the rate per pallet or truck load would be about half as much. Shippers would stand to benefit, as they are the ones paying a huge amount in the form of fuel surcharges.
The spiraling increase in fuel prices over the course of this year has had an impact on all freight transportation industry stakeholders. And there has been no shortage of action items by politicians, industry associations, and shippers and carriers to help curtail the escalation in prices.
Some of these items include:
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the American Trucking Associations rolling out a new sustainability program in May to reduce fuel consumption and CO2 emissions and thwart global climate change;
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the ATA also called on Congress in July to implement a comprehensive plan to address fuel prices ensure an affordable supply for carriers and consumers, and expand petroleum supply, among other initiatives;
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Con-way Freight and Schneider National turning back speed governors on its fleets;
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the U.S. Commodity Futures Trading Commission taking steps to increase the transparency of the energy futures market and to ensure that gas prices are driven by supply and demand (The House of Representatives last week passed legislation geared towards reducing oil speculation in various commodity markets, including oil, but the White House has indicated it will spike it should Senate sign off on it);
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President Bush signing a law temporarily suspending the acquisition of crude oil for the Strategic Petroleum Reserve; and
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Bush saying he would lift the ban on offshore drilling for oil if Congress lifts its current ban on offshore drilling. House Democrats said today that it will let the offshore drilling ban expire at the end of this month, which will leave it future offshore drilling policy up to the next administration.
In regards to oil speculation, James Haughey, Chief Economist at Reed Business Information (LM’s parent company), said the complaints about oil market speculators are not valid.
“Prices go up with speculators entering a market and go down when they leave,” said Haughey. “There is no change in the long term price average. [Windsor’s] testimony gives a very good description of the cost imposed by environmental mandates—boutique diesel blends, bio-diesel requirements, idling restrictions and the excise tax on auxiliary engines. It is good news for trucking that this topic is no longer ‘taboo.’”
Bob Tippee, editor of Oil & Gas Journal, a Houston, Texas-based publication that has covered the petroleum industry since 1910, told LM that while diesel costs remain troublesome, one option for the White House and Congress to relieve the current situation would be to repeal the ethanol mandate.
“[The ethanol mandate] is intensifying competition for highway diesel even as truckers go out of business,” said Tippee. “It's hard to measure the effect, but ethanol logistics is the only way I can explain continuing strong growth in ULSD (ultra low-sulfur diesel).”
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