In The News

Broad impact of diesel spike

High diesel fuel prices – thanks to skyrocketing crude oil prices that show no signs of abating – are broadly impacting the U.S. transportation system. However, some freight segments are finding that they can cope with higher fuel costs better than others.

Memphis-based FedEx Corp. is lowering its earnings forecast for its fourth fiscal quarter (which ends May 31) to $1.45-$1.50 per share from its previous projection of $1.60 to $1.80 per share because its fuel costs are outrunning the express giant’s ability to recoup them via surcharges.

“Since we provided earnings guidance for the fourth quarter in March when the crude oil price was slightly above $100 per barrel, our estimated fuel costs for the quarter have increased more than 7%, or $100 million from our previous estimate, and the weak economy has restrained demand for U.S. domestic express package and LTL freight services,” said Alan Graf, Jr., FedEx’s executive vp & CFO.

“While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices,” he added. “This revised outlook assumes no additional increases to the current fuel price environment and no further weakening of the economy.”

Jacksonville, FL-based Patriot Transportation Holding – which operates liquid and bulk carrier Florida Rock & Tank Lines plus flatbed operator SunBelt Transport – noted in its second quarter earnings report that its average fuel cost per gallon increased 43% over the same period last year, resulting in an increase in fuel costs of $331,000 in excess of its fuel surcharge for its flatbed operation alone.

For the first six months of 2008, Patriot said its average fuel cost per gallon increased 38% over the same period in 2007, with fuel costing $611,000 in excess of its fuel surcharge program.

However, Austin, TX-based uShip reports in its first Transportation Price Index (TPI) report that not all freight segments are suffering equally from the current run-up in diesel prices.

According to uShip CEO Matt Chasen, the company’s first public release of the TPI shows a slight drop in the overall index for the month of April to $2.09, which is a decrease of 4.1% from March but an increase of 3.0% from April of 2007. Over the same periods, the price of diesel fuel, a key component of transportation costs, was up 5.6% and 48.8%, respectively.

“What’s interesting here is that transportation prices are not keeping pace with dramatic rises in fuel costs, which is making for a very difficult environment for transportation companies,” said Chasen. “In fact, overall transportation prices have actually declined in three of the last four months.”

Looking at different transportation categories level, household goods shipping experienced a significant decline of 6.4% from March to April, but is down only a slight 0.7% from prices paid in April of last year. Several important categories are bucking the downward trend, however, he noted.

Prices for transporting cars, for example, have risen for six straight months, with the April index for cars & light trucks up 5.9% over March and up 12.5% over last April. LTL freight rebounded 5.9% in April from a sharp drop in March and is up 10.8% from last year. Prices in this category have increased seven out of the last eight months, Chasen said.

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