News Column

Playing the Fuel

June 2005, HISPANIC BUSINESS Magazine

Kevin Savetz

spirit trucks

Transportation companies on the Hispanic Business 500 report robust business for 2004, despite a growing challenge to the industry: fuel prices. Trucking companies have responded to higher expenses for gasoline by passing costs onto customers as a fuel surcharge. "We estimate we can recover 85 to 90 percent of the fuel cost increase. We eat the difference," says Raul Garza, CEO of Spirit Truck Lines, the number 215 company on the Hispanic Business 500.

Surcharges help increase revenues, but prevent trucking companies from raising rates to cover other costs such as tires, maintenance, and new trucks. "It's hard for us to get an increase on our base rate because we are hitting customers so hard with the fuel surcharge," Mr. Garza says. "There was room, but the profit margin got smaller."

Truckers report stronger demand for their services in the current economy. Public Inc., number 101 on the Hispanic Business 500, saw an unprecedented amount of work in 2004. "We have low and high seasons. Starting in June and July, everything breaks loose. Last June through December, we were at 200 percent of capacity," says Anna Aguiar, CEO of the California-based contract carrier. Mr. Garza of Texas-based Spirit, which moves product throughout the U.S. and Mexico, says his company has nearly doubled its fleet in the past 18 months.

Increased workload means higher maintenance costs. "As mileage increases, trucks have greater wear," explains Jasmine Sachdeva, research manager for the automotive sector at the consulting firm Frost & Sullivan. She adds that shippers "will have more money to invest and will buy more heavy trucks, but rising fuel costs are eating away at that investment potential."

In addition to fuel prices, a shrinking labor pool has impacted the industry. Large carriers have trouble recruiting and keeping drivers in part because of insurance: Firms demand pristine driving records and adherence to a litany of laws and regulations; a driver with one or two tickets may be out of work. Smaller carriers have gone out of business for the same reasons.

"We're making a decision to grow at a slow pace because there's a shortage of drivers," says Mr. Garza, whose company grew revenues 25.6 percent last year. The company is not adding many new customers, and instead has maintained its customer base for the past two years. "Growth is going to be dictated by driver availability," he adds.

Public is also following a slow-growth plan. According to Ms. Aguiar, the reason is not a lack of drivers, but a desire for high-quality clients with a track record for paying their shipping bills. "We're careful about how we grow," she says. "It's not quantity of business, it's quality."


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