Historical Diesel Price Trends

Every year since 2001, diesel prices peak after the month of April 90% of the time.  For the last ten years, peak diesel prices are almost 27% higher on average when compared with the average price for the year before this week.  The average price of diesel after this week in April increases by nearly 10% when compared with the average price before this week.  Up to this week, the average price of diesel for 2011 has been $3.63 per gallon, compared with $3.61 at this time in 2008.



Data Source: U.S. Department of Energy Weekly Retail On-Highway Diesel Prices

Oil Supply & Refining Capacity

The top 5 importers of crude oil to the U.S. in January of 2011 were Canada, Mexico, Saudi Arabia, Nigeria, and Venezuela; accounting for 70% of U.S. oil supply.  The same countries were also top suppliers to the U.S. in 2008. Mexico’s oil production capacity is decreasing while Canada’s is increasing, diplomatic ties with Venezuela have eased but remain tense, and militant attacks in Nigeria could escalate with upcoming elections as they did in 2007. Last month in Nigeria, a blast rocked an oil facility run by an Italian energy major subsidiary, and elections are expected to be held over the next four weeks.  Aside from these developments, there is no direct evidence of foreseeable supply disruptions throughout the rest of this year from any of these top 5 suppliers.

Data Source: DOE Crude Oil Imports Top 5 Countries, January 2011


The U.S. average operable refining capacity in January of 2008 was 17.59 million barrels per calendar day running at 86% capacity, with a yearly average of 17.61 million barrels per day.  The average operable capacity for January 2011 was 17.69 million barrels per calendar day running at 85% which is in fact the highest output recorded. Historically, output increases during the summer months.



According to a recent U.S. Energy Information Administration report:

EIA projects that non-OPEC crude oil and liquid fuels production will increase by 170,000 bbl/d in 2011 then decline slightly in 2012. Forecast OPEC crude oil and non-crude liquids production increase by 0.1 million bbl/d and by 0.7 million bbl/d in 2011, respectively.  EIA expects that lost crude oil production from Libya will be made up for by both drawdown of inventories and increases in production from other OPEC countries.  As a result, EIA projects that OPEC surplus capacity will fall from an average 4.4 million bbl/d in 2010 to 4.1 million bbl/d in 2011.

Energy Consumption

In 2008, global liquid fuels consumption was estimated at 85.76 million bbl/d, compared with 19.5 bbl/d in the United States. 2009 statistics reflect a decrease in consumption in both the U.S. and the world, while increasing in 2010. With the exception of China, it is clear that skyrocketing oil prices in 2008 had a direct effect on reducing worldwide consumption.

According to a recent U.S. Energy Information Administration report:

World crude oil and liquid fuels consumption grew by an estimated 2.4 million bbl/d in 2010 to 86.7 million bbl/d, the second largest annual increase in at least 30 years.  This growth more than offset the reductions in demand during the prior two years and surpassed the 2007 consumption level of 86.3 million bbl/d.  EIA expects that world liquid fuels consumption will grow by 1.5 million bbl/d in 2011 and by an additional 1.7 million bbl/d in 2012. Non-OECD countries will make up almost all of the growth in consumption over the next 2 years, with the largest demand increases coming from China, Brazil, and the Middle East.  EIA expects that, among the OECD regions, only North America will show growth in oil consumption over the next two years, offsetting declines in OECD Europe and Asia.

X-Factors: The Geopolitical Landscape

Global instability concerns people from all nations, including the U.S.  Earthquakes and natural disasters are prevalent and world poverty is abundant. As the Earth’s population increases, finite resources will become scarce and more costly to extract as demand for energy rises, leading to further unrest. However, compared to 2008 and recent history, there has always been world turmoil, technology is improving, and according to the International Energy Agency, worldwide oil supply rose to an all time high in February of this year despite the unrest. Below are some noteworthy developments.

North America

U.S. government deficit spending has generated concern among citizens and businesses. A government shutdown was recently avoided over budgetary disputes. In the current administration’s crosshairs are the elimination of “Big Oil” subsidies, which would most likely increase fuel prices in the short term. However, as prices rise, this could become a lower priority as the administration takes on other pressing challenges with a Republican dominated house and a fragile economic recovery. The BP disaster in 2010 sparked concern over new and existing offshore oil rigs, which could lead to a reduction in long term domestic oil production but should not affect overall short term supply. The biofuel industry, which gained momentum from the 2008 gas price shock, has since matured. The Mexican government has faced an increasing number of cartel-related murders since 2008, and is still at odds with the U.S. over the cross-border trucking provision of the NAFTA.

U.S. Dollar Value

The U.S. dollar is currently down around 5% from where it was this time in 2008 compared with the Canadian dollar, almost 7% from the Chinese Yuan, and is up almost 9% compared to the Euro. Oil prices typically fall when the value of the dollar rises, and vice versa.
View U.S. Dollar Value Comparison Graph Here
Source: Google Finance

Global Stability

Other recent developments which could impact worldwide stability and the price of energy include unrest across the Middle East, turmoil in Libya, wars in Iraq & Afghanistan, Japanese earthquake and ongoing nuclear disaster, militants in Nigeria, pirates in Somalia, and the European debt crisis; the outcomes of which are impossible to predict.

Conclusion

Ceteris paribus, the peak price of diesel in 2011 should be somewhere around $4.59 per gallon, with a ceiling at $5.48 and a bottom peak at $4.25. The average price of diesel from now until the rest of this year should come out to around $3.99 per gallon, with a high average of $4.39 and a low average of $3.30. EIA’s forecast, as of March 2011, for the average retail price of on-highway diesel fuel for the entire year of 2011 is $3.81 per gallon.

Get PocketFuelCal

This publication was written to help shippers and trucking companies prepare for the future. Any reprint or distribution of this publication is strictly prohibited without prior written consent from the author.

Author accepts no responsibility legal or otherwise for the accuracy or content of this publication.

Sources

Weekly Retail On-Highway Diesel Prices

http://www.eia.doe.gov/oog/info/wohdp/diesel.asp

Crude Oil and Total Petroleum Imports Top 15 Countries

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html

U. S. Operable Crude Oil Distillation Capacity

http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mocleus2&f=m

Short Term Energy Outlook

http://www.eia.doe.gov/steo/

International Energy Agency

http://omrpublic.iea.org/

Google Finance – Exchange Rates

http://www.google.com//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1302480331854&chddm=1059268&cmpto=CURRENCY:USDEUR;CURRENCY:USDCAD&cmptdms=0;0&q=CURRENCY:USDCNY&ntsp=0

Next Problem for Oil: Nigerian Elections

http://online.wsj.com/article/SB10001424052748703806304576236762483979964.html

PocketFuelCal – Fuel Surcharge Calculator

http://itunes.apple.com/app/pocketfuelcal-fuel-surcharge/id397497199?mt=8

The table of changes below [Download PDF Version] provides a “quick reference” to the major changes being proposed in the December 2010 HOS Notice of Proposed Rulemaking. Under “HOS Proposed Rule Documents” you will find all of the formal documents related to this proposal as well as FAQs and other useful information. Each may be downloaded or viewed online. This information will be updated as needed. The formal NPRM was published in the Federal Register on December 29. Publication starts the formal 60-day comment period ending on February 28, 2011.

NOTE: Do not use this site as a substitute for the Federal Motor Carrier Safety Regulations (FMCSRs). The site is constantly being revised and continues to change as regulations are published, updated, etc. You should consult the FMCSRs, which are updated quarterly online.

Let’s say your base rate is $2.00 per mile, which works out fine when the price of fuel is $2.50 per gallon; but what happens when gas prices exceed $4.00 or even $5.00 per gallon? Once you’ve downloaded PocketFuelCal, select your vehicle’s average Fuel Efficiency in the Settings, then select your Base Fuel Cost (in this case $2.50), and you are ready to begin. Enter the current Fuel Price and Distance of Trip and protect your profits by knowing exactly what that fuel price increase is going to cost per mile, per km, and total. Not sure what the current fuel price is? Quickly refer to the DOE Fuel Price Index within the app to check the national average, or bookmark any web page of your choice. PocketFuelCal is simple, smart, and efficient; download now to start saving today!

CURRENCIES INCLUDED:

United States Dollars, Euro, Japanese Yen, Australian Dollars, Brazilian Reais, British Pounds, Canadian Dollars, Chilean Pesos, Chinese Yuan Renminbi, Czech Republic Koruny, Danish Kroner, Hong Kong Dollars, Hungarian Forint, Icelandic Kronur, Indian Rupees, Indonesian Rupiahs, Israeli New Shekels, Kazakhstani Tenge, Malaysian Ringgits, Mauritian Rupees, Mexican Pesos, Nepalese Rupees, New Zealand Dollars, Norwegian Kroner, Pakistani Rupees, Phillipine Pesos, Russian Rubles, Singapore Dollars, South African Rands, South Korean Won, Sri Lankan Rupees, Swedish Kronor, Swiss Francs, Tawain New Dollars, Thai Baht, UAE Dirhams, Venezuelan Bolivar

Apple, the Apple logo, iPhone, iPod touch, and iTunes are trademarks of Apple Inc., registered in the U.S. and other countries.

iPad is a trademark of Apple Inc.
App Store is a service mark of Apple Inc.

Calculate Fuel Surcharges

Once the base fuel cost has been set, you can calculate fuel surcharges by entering the current fuel price and distance of trip.

Use Case: If you have contract per mile rates with your customer, say $2.00 mile plus fuel surcharge. This gives you an accurate way to determine what you really need for a fuel surcharge.

Calculate the Increase in Fuel Cost From Last Week

Tap the gas pump icon in the top left to view the DOE fuel price index (if you prefer another website to get your fuel prices, you can bookmark any web page of your choice in the settings). Get the fuel price from the previous week and enter that number in the base fuel cost setting. Now you can calculate the increase in fuel cost by entering the current fuel price and distance of trip.

Use Case: You work with flat rates, say $3500 per load. Fuel goes up 10 cents but your broker still wants to pay $3500. This gives you and your broker an accurate method to compensate you for the price increase. It may only be $27.78 but why should you eat that cost?

Calculate the Total Fuel Cost of a Trip

Set the base fuel cost to zero, then you can quickly estimate the total fuel cost of a trip by entering the current fuel price and distance of trip.

Use Case: You are trying to decide whether or not to take a load into a particular region and you know fuel is more expensive there. This gives you a quick way to estimate how much you will need to spend in fuel expenses if you take the load.

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Trucking Advantage, LLC announced today the upcoming release of PocketFuelCal; a unique business and productivity app for iPhone™, which provides transportation industry professionals with a quick method to calculate fuel surcharges.

According to the Department of Energy, the average price of diesel in the U.S. costs 47 cents more than at this same time last year. Transportation businesses typically incur a fuel surcharge to recoup their losses attributed to these price increases. “Truckers, drivers, shippers, and business travelers around the world will appreciate the simplicity and flexibility of this app, as it provides an efficient means to protect their profits,” according to Trucking Advantage.

To celebrate the launch, Trucking Advantage plans to give away gas money and prizes via social networking. Follow @truckingadv on Twitter or visit TruckingAdvantage.com to find out more. The official release date is to be announced soon.

About Trucking Advantage

Trucking Advantage is a Dallas, TX based mobile software developer and online resource, serving the transportation industry.

Apple, the Apple logo, iPhone, iPod touch, and iTunes are trademarks of Apple Inc., registered in the U.S. and other countries.
iPad is a trademark of Apple Inc.
App Store is a service mark of Apple Inc.

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Rates in the trucking business fluctuate with supply and demand. An owner-operator can miss out on thousands of dollars each year if they are not up to date on the current market. Here are four tips to keep your rates in line:

1) If you subscribe to an online load board, search for how many loads are posted versus how many trucks are posted within a certain radius. This will give you a good idea as to what you are up against. For example: If there are 50 trucks posted and 500 loads posted, then you are in a good position to negotiate a great rate.
2) Pre-Book your loads a few days in advance in the slow time, but learn to play the market when things are heating up. When trucks are in high demand, don’t be afraid to hold out for higher rates. An extra $250 per load adds up quick.
3) Don’t burn bridges! Even if you don’t like the way a customer treated you on a load, don’t close that door completely. Leave the choice to yourself whether or not you want to work with them again. You never know, one day you might really need their load.
4) Check out the market to where your load is going to before you book it. A company might be paying a very good per mile rate on a load but if it goes to somewhere where there are no outbound loads for hundreds of miles then your deadhead will eat away at that profit.

Owner Operators can compete with larger trucking companies through computer technology with a mobile office in their rig.  With a minimal investment in a laptop, mobile scanner, and online fax, truckers can scan receipts, invoice customers electronically, send/receive rate confirmations, calculate miles, and communicate with their customers more effectively. In some cases, cash flow can be increased by up to 20% by billing electronically. The business owner has a better chance of getting a fair rate if they can calculate miles on the fly with a computer-based mileage program. The ability to search loads in real time from online load boards not only brings more opportunities, it allows the owner operator to determine market freight rates more efficiently. Receipts and BOL’s can be scanned immediately, leading to better record keeping in support of tax information and dot audits. Many customers are especially impressed when a driver has the ability to contact them via a professional email address while on the road.

How do you find trustworthy customers who pay reasonable rates, on time, and are not on the verge of financial collapse? That is the million dollar question… The truth is, with a little persistence and consistency you can make your sales goals a reality.

Getting Started

Personal Commercial – First impressions are important. Usually they are what people remember you by the most.  Anyone can say “I own a trucking company”, and that’s about the end of that conversation. Put together a personal commercial as a way to introduce yourself to people. Make it interesting.  You want the person whom you are introducing yourself to ask you more questions.  More importantly, you want to stand out. Practice it in the mirror and know it by heart. Below is an example of a personal commercial.

“My name is (name) and I am the owner of (company name). We help businesses grow by providing quality transportation services tailored to fit each client’s needs. As businesses strategically compete on the basis of cost, service, or time, choosing the right transportation provider plays an essential role in minimizing total costs and maximizing customer value. We provide transportation services to some of the nation’s top businesses in their respective industries.”

Setup Packet – It is important to always have on hand your carrier information packet.  Email is the best way to send it not just because it saves paper, but because your customers will be impressed. This packet should have copies of your Operating Authority, W-9, and Insurance Certificate.  Your cover page should only be one page, and should include all of your contact information, EIN (tax id), and MC Number, email & website address, and company logo. Keep it simple. Don’t list references on a cover page which goes out to every broker and shipper you may or may not ever work with.  “References Upon Request” is a much better idea. 9 out of 10 times you will never be asked for them.

Shippers vs. Brokers – Some will tell you brokers are evil, and others will tell you that shippers are cheap. Don’t listen to them. These two types of customers are the lifeblood of your business.  There are good brokers and there are bad brokers, just like there are good shippers and bad shippers. Identify the good ones, build a relationship with them, and if you make them successful they will make you successful.

Do Your Homework

Identify your target market – Figure out which type of clientele you want to go after.  If you have a refrigerated trailer you may want to target food and beverage manufacturers.  If you have a flatbed, construction supply companies may be your best bet. It is recommended to go with what you know, especially at first. Once you have identified your market, it’s time to put together a list of potential clients you want to call on. You can find leads from a variety of sources. There are websites who sell published listings of companies, but these services are usually expensive.

Research the potential client – After you have put together your list, you need to become familiar with certain aspects of each company.  A good place to start is to go to their website.  You will want to know things like the size of their company, locations of distribution centers, what types of products they ship, etc.  Remember, information is power.  You don’t want to sound like you are clueless when you make that call.

Prepare for the call – You know who you are going to call, you are familiar with their operations, now it’s time to prepare some discovery questions, which is a list of questions you need to know before you can make any type of bid or proposal. See below for further details.

Make the Call

You’ve gotten this far, don’t let fear prevent you from making the calls! The first call of the day is always the hardest. Once you make that first call, the rest become easier. Don’t expect a sale on the first call, in fact don’t try. Most shippers and brokers get calls every day from trucking companies. The main objective of your first contact is to find out more information and get another appointment, not to make an instant sale.

Identify the Decision Maker

Don’t make the mistake of going through a great sales pitch only to find out you are talking to the wrong person. Navigating your way through secretaries and administrative assistants can be a difficult task. Most of them are trained to fend off salespeople.  A good way to get around this is to tell them you are (name) with (company name) and you would like to find out which person makes the transportation decisions so you can mail them some information about your company. Usually they will give you a name. Once you have that name you can call back a day later and ask to speak with the person you were referred to. Confirm that is the right person to talk to before you begin with your questions.

Ask Discovery Questions

Before you offer any type of proposal, you have to know what you are getting yourself into. A customer might give you a great rate but fail to mention your truck may layover from time to time with no detention fee, there is high dollar/high risk cargo on board, or they take 60 days to pay your invoices. Some basic things you need to know are type of equipment required (which you should have already figured out before you called them), frequency of loads, seasonality, payment terms, value of cargo, risk of claims, lead time given, transit parameters, and any other information that will help you determine what rates to offer. Listen to what they have to say and take notes. Find out what their hot buttons are.

Formulate a Proposal

Because all shipper’s freight is run differently, various types of rate structures can be used. You must learn how to put yourself in your customer’s shoes. Figure out what is most important to them. The key is to come up with a rate structure that works best for them, while at the same time taking your costs into account. If you executed your discovery meeting successfully, then you already know what they pay. There are basically two types of rate structures, which are transactional and contract rates:

• Transactional rates fluctuate with supply and demand. When the market goes up, so do your profits, and vice versa.  Transactional rates can be used to your advantage when you first begin working with the client and are still getting to know how their business operates.That way you can adjust your rates accordingly and eventually offer contract rates in order to secure more loads.  They are also used advantageously to find backhauls and for seasonal freight. The disadvantage of transactional rates is they are not consistent. When the market is up, profits are up, and vice versa.

• Contract rates offer a consistent revenue stream and are typically based on mileage, stops, and a fuel surcharge.  They can also be by the hour, or by the day. It all depends on what the client is receptive to and comfortable with. Of course, all contracts are negotiable, but you would be wise to make sure these types of things are included. Flat rates are fine as long as they cover fluctuations in costs. It is extremely important to know your customer’s business inside and out before you offer or accept contract rates.

Present Your Offer

Keep it simple. Be clear, thorough, and confident. Explain how you came up with your proposal. Encourage feedback. Most importantly, ask for the business! Whatever you do, once you have finished what you have to say and asked for the business… shut up! Don’t say anything until you have gotten a response.  Even if you have to sit there in silence for a few minutes, allow the customer to make the next move.

Overcome Objections

Ever heard the following objections?  “You’re rates are too high.”  “I want to shop around.”  “I’m satisfied with my current carrier.”  Don’t be discouraged by these types of statements. This is where the fun begins! There are real objections and there is also what they tell you, which often aren’t always the same. Qualify exactly what is preventing them from agreeing to your terms.  Once you have determined this, verify that there isn’t anything else preventing them from doing business with you. Back them into a corner:  “So if we were to bring our rates in line with what you are currently paying, is there anything else that would prevent us from doing business?” When possible, answer their question with another question. For example, when asked “How fast can you deliver?” you respond with “How fast do you need us to deliver?”  And so on. Try to keep your options open. Be flexible and think outside the box… it’s time to start negotiating!

Negotiate

The most important element of a negotiation is to know how to listen. The one who talks the most is usually not the one who walks away with the upper hand. Start out high (within reason) and work your way down. Lowering your rate is a lot easier than raising your rate. Plus it makes your customer feel like they are doing their job. Emphasize the importance of intangibles such as fast billing, quality service, and good communication, or whatever presses their hot buttons, which you should have determined in your discovery meeting.

Secure Another Contact Date/Time

Whether you get the business or not, if you still want the business, make sure to schedule a follow up meeting or phone call. The frequency, timing, and method of contact depend on what information you have uncovered.

Stay Persistent and Consistent

Rejection can be discouraging but don’t let it get you down. View rejection as a challenge. Set goals for the amount of calls you want to accomplish for the week and stick by those goals. The more calls you make, the more likely you are to gain new clients.  If you really want the business, don’t take no for an answer. Always be tactical in your approach, but don’t give up.  Companies are always changing, which will open doors for new business if you are persistent and consistent.

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