Inside the Numbers

Avery Untitled 1Watch what happens

Diesel prices are up 33 percent since the end of September. When you read about skyrocketing diesel prices, you should be asking yourself what it means for your business. Surging diesel prices represent both a threat and an opportunity for companies that sell parts and services to the trucking industry

The opportunities seem fairly obvious. In the past several months, you probably have seen more interest from your customers in either products specifically designed to save fuel or in fuel-efficient specs for standard products. You make a little money by helping your customer save a little money.

The potential impact of fuel prices on your business is a bit more complex than enjoying some incremental sales of fuel-saving devices, however. It’s important to recognize that while a truckload carrier typically might recover 85 percent or more of “excess” fuel costs through surcharges, it often doesn’t see that money for 45 or even 60 days when the shipper pays the freight bill. In essence, carriers fund today’s fuel bills with surcharges booked six to eight weeks earlier.

For example, the national average price of diesel as of March 28 was $3.932. In mid-February, the average price was $3.534. You can imagine the hit to cash flow that a trucking company suffers when its current surcharge receipts are based on prices that are 40 cents below current prices, which basically must be paid immediately.

The likely effects of such a cash crunch are, not surprisingly, mostly negative. You can presume that fleets will forego purchases that are not critical. Worse, some of your customers just might not survive, leaving you without their business and potentially one in a long line of unhappy creditors.

If there is anything resembling a silver lining to this dark cloud, it would be that financially stressed fleets probably aren’t renewing their fleets, so demand for parts on aging trucks and trailers remain. But on balance, you — like your customers — probably are better off with stable diesel prices.

Today’s events can be tomorrow’s opportunity or threat.

When you read that truck makers announce production increases — as Volvo did last month and Daimler did in February — does that register with you? Certainly, it is a sign of general health and confidence, but the news is not all rosy. Bringing down the age of the industry’s fleet is long overdue, but it could soften demand for parts and services in the near term.

It’s not surprising that the price of diesel or rate of truck production would affect a company that sells truck parts or services trucks. But don’t overlook the threats and opportunities in even seemingly irrelevant events.

For example, the tragic earthquake and tsunami in Japan has disrupted global supply chains. Often, the sourcing of parts for complex components and systems spans several continents, so don’t be surprised to see some unexpected shortages in items that you perhaps never knew had a link to Japan.

Or consider that throughout most of the United States, this winter was unusually harsh. So what? Shutdowns of highways, distribution facilities and retail establishments idled many trucks that otherwise would have been hauling freight. In fact, the American Trucking Associations blamed winter weather for much of the 2.9 percent drop in its truck tonnage index in February.

Anecdotally, comments in a monthly Randall-Reilly survey of fleet executives showed that winter weather cost many fleets loads and revenue in January and February. But remember, the best time to maintain a truck is when there’s no load to haul, so challenging weather can be good for business — especially if you plant that seed in the customer’s mind.

Your business doesn’t operate in a vacuum. Understanding the events around you can mean the difference between a good month and a great month.

Avery Vise is executive director, trucking research and analysis for Randall-Reilly Business Media and Information.

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