April 9, 1996
MOTOR CARRIERS BRACE FOR DISMAL FIRST QUARTER RETURNS
Severe winter weather, lower freight volumes and a sharp increase in fuel prices have created havoc for the trucking industry during the first quarter of this year. Meanwhile, truckers are still scrambling to recover the increases in operating costs experienced during 1995.
The harsh winter weather, in addition to creating operational nightmares, is also cited as a major reason for the recent sharp rise in fuel prices both in Canada and the United States. Prospects for profits in the first quarter were already dimmed by lower year-over-year first quarter freight volumes, and costlier operations due to the severe winter storms. To exacerbate the situation, fuel prices have risen by an average of 8% since last December, with some carriers reporting bulk purchase price increases as high as 14%. It is expected market conditions will keep upward pressure on fuel prices through the spring season and into early summer.
Fuel costs represent about 7.5% of total operating costs for LTL and 17% for TL carriers. As a quick rule of thumb, carriers need an additional 1% on their LTL and 2.2% on their TL revenue to offset every 5 cents per litre fuel increase. The Freight Carriers Association of Canada (FCA)’s fuel survey shows that on average, prices have gone up by 3.5 cents a litre since last December. The industry’s current profit margins do not allow carriers to absorb any part of this increase.
This alarming news is particularly untimely for Canadian carriers who have seen their margins deteriorate steadily throughout 1995, as demonstrated by the fourth quarter operating ratio (excluding interest and income taxes) of 98.5 compared with a 95.3 for the prior year. Industry studies and indices maintained by the FCA indicate the general freight carriers operating costs rose by 3.8% during 1995. With the excess capacity created by the lower volumes, carriers are experiencing some difficulty in passing on their operating cost increases to their customers.
The Tariff Advisory Committee (TAC) of the FCA is reiterating its recommendation that motor carriers make every effort to recover their operating cost increases.
The Freight Carriers Association of Canada (FCA) represents over 100 general freight carriers in matters related to economics, costing, pricing and finances, as well as motor carrier statistics. The FCA, whose members operate in all Provinces of Canada, has been serving the trucking industry for more than half a century. The Tariff Advisory Committee (TAC) is composed of executives elected by the membership to monitor the industry’s condition and make recommendations.
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