Rising fuel costs, both gasoline and diesel, are putting the squeeze on L.A.’s fleet operators.
The rapid surge in prices has left everyone from the owners of messenger services to trucking companies scrambling to pass the costs on to their customers if they can and wondering when or if high prices will ease.
“What’s scary is people are saying we may be looking at three bucks for a gallon of gas,” said Robert Faulkner, co-owner of Procourier, a Los Angeles-based messenger service with 300 cars on the road. “My partner and I are asking, ‘What are we going to do?'” Indeed. The average cost of a gallon of regular gas in Los Angeles jumped a whopping 16 percent since last month to $1.95, with many stations charging better than $2, a survey by the Automobile Club of Southern California found.
Newport Beach energy economist Philip Verleger Jr. says it’s going to get a lot worse before it gets better. Verleger sees gas prices climbing as high as $3.50 a gallon this summer, thanks to a lack of refinery capacity and the public’s love of gas-guzzling SUVs.
Although it is still cheaper than gasoline, diesel fuel now goes for an average of $1.64 a gallon nationwide, about 7 percent more than a year ago, according to the Opis Diesel Price Index.
The rising fuel costs have many fleet operators adding fuel surcharges of anywhere from 5 to 10 percent to help cover their costs.
“We just pass it on to the customer. There’s no ifs or buts about it,” said Mike Barbata, president of Jet Delivery Inc., a Los Angeles messenger firm with 425 employees. “In the end, the consumer pays for it.”
Others fear that fuel surcharges will push courier prices beyond what the market will bear.
“At some point, people are going to draw the line and say, ‘I don’t want this service,'” said Faulkner.
Procourier instituted a 5 percent fuel surcharge when gas prices spiked last summer. The latest increase, however, puts the company in the quandary of having to decide whether to raise prices again.
Inter-Con Security Systems Inc., a Pasadena security firm, has a fleet of 40 cars in Southern California, half in L.A. and half in San Diego. The company has seen its fuel costs increase 20 percent since last year.
Yet, the company can’t pass that increase onto its customers because of prior contracts, some of which don’t come up for renewal for three years.
“At this point there’s not much we can do,” said Ray Nassief, vice president of domestic operations. “We just have to eat the additional cost and figure out a way to be more efficient.”
Surcharges not assured
Dependable Highway Express, a Los Angeles based trucking and warehousing company, tries to extract a fuel surcharge from its customers but some simply refuse to pay.
“The customer is saying, ‘Do you want our business or not?'” said Bob Massman, vice president. “We have to decide if it’s worth handling this account without the surcharge.”
A couple of years ago, the company was paying about 95 cents a gallon for diesel. With 250 trucks on the road, the additional cost of paying $1.64 per gallon, on average, adds up.
Massman and others in the trucking industry are irked at the California Air Resources Board for requiring fuel distributors to sell cleaner-burning, more-expensive diesel fuel in California.
CARB only allows a select few refiners to sell the low-sulfur fuel, and the lack of suppliers has caused California prices to rise disproportionately to prices in other states, the truckers contend.
California truckers are currently paying an average of $1.72 a gallon for diesel, compared to $1.51 in Arizona, $1.54 in Las Vegas and $1.34 in Portland, Ore., according to Opis.
That puts California truckers at a competitive disadvantage to out-of-state truckers, said Stephanie Williams, vice president of the California Trucking Association, which represents about 85 percent of the state’s trucking companies.
“A big rig can go 1,800 miles on a tank of fuel. These guys (from out of state) can fill up in Arizona, make a run into California, and never have to pay the higher price,” she said. “It’s really bad for California. It’s taking money out of people’s pockets.”
Weekly price adjustments
Greg Owen, president of Tri-Modal Distribution Services Inc., a general commodity hauler out of Carson, said that fuel prices have been so volatile that he’s begun readjusting his fuel surcharge on a weekly basis.
If the surcharge is set too high, and fuel prices go down, it shortchanges the shippers. If the surcharge is set too low, Owen and his owner-operators eat the additional expense.
Ron Guss, president of Intermodal West, said that a fuel surcharge is a hard sell, especially when he’s dealing with some out-of-state customers who see diesel selling for as little as $1.20 a gallon in their home states.
“What do you do? You try to pass on the costs, but every customer has a different take on that,” he said.
Many fleet operators said they wouldn’t be surprised to see gasoline jump to more than $3 a gallon this summer. Massman, with Dependable Highway Express, sees an upside to the higher prices.
“As long as gas is going higher, people will have an easier time understanding when we try to get a fuel surcharge,” he said.
There is one notable exception to the angst sweeping the ranks of fleet operators: The L.A. County Metropolitan Transportation Authority.
Although the mass transit provider is looking at a $14 million net increase in its fuel bill in its upcoming annual budget, officials say the higher prices may be a good thing.
“As the price of gas increases, more and more people will seek other alternatives,” said Rick Jagger, a spokesman.
