High Fuel Prices, Court Ruling Squeezing California Truckers
By DAVID GREENBERG
California truckers, ready to combust over rising diesel fuel prices, now have the added uncertainty of this month’s Supreme Court decision allowing Mexican drivers to bring freight across U.S. borders.
While the impact of the court decision will take time to play out, it’s unlikely to be good for truckers. And it comes at a time when they’re already losing ground in a three-way battle to determine who will absorb diesel’s high cost,truckers, retailers or steamship lines.
Already, independent owner-operators serving the ports of Los Angeles and Long Beach have staged periodic strikes over the refusal of retailers and steamship lines to adequately reimburse them for added fuel costs. So far, trucking companies and their independent drivers have had only limited success pressuring steamship lines to pony up.
And in an industry that’s already operating on razor-thin profit margins, truckers can’t afford to raise rates with a take-it-or-leave-it ultimatum. Steamship lines and other customers, skilled in pitting independent truckers against each other, will simply offer the business to someone else.
Looming in the shadows are lower-cost Mexican companies, who soon will be offering lower rates.
“Everybody that does business like I do in Southern California is fearful of this,” said Armando Freire, owner of Dimex Freight Systems Inc. in Otay Mesa, near the Mexican border. “We are all going to lose business. Even if (Mexicans) cut 20% off, they can still make a nice chunk of change and beat the heck out of me.”
A big portion of the region’s trucking business is centered at the ports of Los Angeles and Long Beach, where retailers hire steamship lines to import goods from Asia and other overseas locations. Truckers haul much of the goods to rail yards east of downtown Los Angeles, or to distribution centers in and around the Inland Empire.
As diesel prices increase,between $2.20 and $2.50 per gallon recently for the cleaner diesel fuel that’s required in California,each participant in the delivery chain wants to pass on the cost to someone else.
Some of it gets passed on to consumers, but not all. Retailers place pressure on their suppliers to keep costs down. And as the size of large importers such as Wal-Mart Stores Inc. and Target Corp. has increased, so has their pricing power.
While long-distance trucking companies have been able to levy fuel surcharges, there’s now the threat of their rates being undercut by Mexican companies.
Truckers claim they could be facing a dilemma similar to when the industry was deregulated in the late 1980s and many companies went out of business.
Retailers said the increased competition might bring rates down slightly, but nowhere near as much as truckers believe because the bulk of imports comes from Asia, not Mexico. Under the high court’s ruling, Mexican truckers only will be able to handle loads going across the border in either direction, a $236 billion trade last year.
Many Mexican companies already have applied for permits from the U.S. Department of Transportation, which is awaiting the final go-ahead from President Bush. Processing the first ones will take two to three months.
Truckers say it’s only natural that drivers hauling freight from Mexico to a U.S. city will look for additional cargo to transport on the way back, even if it doesn’t make it all the way into Mexico.
“They are not allowed to, but I would imagine that some are going to risk it,” Freire said. “If I’m in the business, I won’t go to Seattle and come back empty. That’s ridiculous. It will double your cost.”
Since deregulation in the 1980s, California’s trucking industry has been operating on thin profit margins,generally 3% to 5%.
Truckers who haul goods within the state believe they are most vulnerable to the Mexican influx.
That’s because they charge an average of $1.25 per mile, while Mexican drivers charge only 35 to 50 cents. That will give them the ability to drastically undercut California companies, according to the West Sacramento-based California Trucking Association.
What’s more, Mexicans who tank up across the border will pay only $1.60 to $1.70 for the dirtier fuel (about one-quarter to one-third less than their U.S. counterparts).
With the Supreme Court ruling, the trucking industry has shifted some of its attention away from the gas reimbursements and is trying to get legislation introduced that will force Mexican truckers to pay the same 18-cent excise tax per gallon of diesel fuel that U.S. drivers pay.
The Supreme Court ruling “makes our problems with fuel look minor,” said Stephanie Williams, the California Trucking Association’s executive vice president. “We’ve added a new state to the union as far as trucking goes. This makes us an endangered species.”
Last month drivers staged a series of “wildcat” strikes and rallies at some West Coast ports. On June 7, independent truckers who were not getting what they felt was their share of surcharge money walked off the job.
Even the larger port trucking companies don’t appear to have any more muscle than the mom-and-pop operations. If they did, they would not have been operating at level pay rates over the last decade.
“The trucking company is not the slumlord here,” said a port trucking company executive who spoke under the condition of anonymity. “When the customer won’t pay us, the trucking company doesn’t have it to pass on to the truck driver. They are passing on what they can get.”
In the last six weeks, importers have reluctantly upped the surcharges to as much as 10% of the freight rate for port drivers and up to 9% for long-haul operations.
Whether truckers get higher surcharges remains to be seen, said Tom Teofilo, vice president of the Pacific Merchant Shipping Association of Southern California, which represents steamship lines.
“Every shipping line is doing something on its own,” he said. “I can’t speak for the group as a whole.”
Greenberg is a staff writer with the Los Angeles Business Journal.
