Despite rising fuel prices, trucking prospers

By Ade Adesanya

Interstate Highway 35 is the major north-south highway for the Central Texas region, and more than 30 trucking and logistics companies call the Greater Waco area their home base.

The economy is in the recovery phase, and as retailers have started making gains as predicted by 2010 industry forecasts, the trucking business in Waco has grown. Retailers are ordering more finished goods, while manufacturers are ordering raw materials, industrial equipment and replacement parts.

“The Greater Waco Chamber [of Commerce] is doing great things for the larger distribution centers,” Mitch Perry, the service center manager for the Con-way Inc. branch in Waco, said. “We have increased our business locally due to Caterpillar and other national retailers doing business in the Greater Waco area.”

According to Perry, the Waco Chamber and the city are making decisions that affect the trucking industry positively.

“We benefit directly, because it means they [local businesses] will order more materials and finished products which we will deliver,” Perry said.

In addition to Waco’s strategic location on the map and its business incentives, the city is a pool for potential drivers, which trucking companies need to compete when fueling costs are rising.

“We enjoy a pretty good recruiting pool of experienced drivers from the Waco area; about 90 percent of them are recruited locally,” Perry said.

According to the 2010 IBISWorld industry report, crude oil prices are a major determinant of the price of diesel. IBISWorld is a market research organization that provides information for strategic planning and research purposes.

World market price of imported crude oil is subject to socio-economic events that occur in the countries the crude oil is imported from.

According to an article by the New York Times, oil prices continued to climb as reports emerged about the disruptions to crude oil extraction in Libya. Crude oil prices reached $100 momentarily Wednesday before settling at about $98.

These rising crude prices directly affect the transporters in Waco, who then pass on the cost to the consumers.

“When there are problems overseas and diesel prices rise, our customers have to compensate us based on the national average of diesel prices,” Larry Rooks, the general manager for Heritage Dedicated Services Inc., said. “For example, this time last year, diesel prices were about 73 cents less per gallon, and customers pay us the difference if diesel prices rise.”

Higher diesel prices mean truckers will employ cost-effective strategies to minimize fueling costs. One of such strategies is employing experienced drivers who are equipped with fuel economizing driving skills. These skills are important because cost savings can be passed to consumers, Perry said.

Despite the rising gas prices, savings from wholesale purchases are expected to increase business for truckers over 2011, according to the IBISWorld report.

According to the report by IBISWorld, trucking services are a barometer of the U.S economy because they represent nearly 70 percent of goods carried by all modes of domestic freight transportation.

As manufacturing output increases, demand for trucking services will also increase.

Con-Way Inc. is the largest trucking company in the U.S by market share. The trucking giant’s Waco branch competes for business against small independent contractors and other large trucking companies.

According to IBISWorld industry reports, Texas and California have the largest proportion of surface trade with Mexico, accounting for 56 percent of the total truck movements across the southern U.S border.

Economic recovery is tracked by expected increases in the manufacturing sector according to the industry report. Industry reports also forecast that trucking companies can expect to benefit from business expansion due to the expected increase in manufacturing in 2011.

Companies in Waco confirm these expectations, which factor in diesel price fluctuations.

“We expect 2011 to be a pretty decent year. The federal motor carrier has new rules this year and that will eliminate bad drivers,” Rooks said. “This will free up the market for the best businesses to compete locally.”

Companies such as Heritage Dedicated Services Inc., based in Waco, specialize in contract trucking for companies who pay for trucking services. They employ contractors because they want to focus on their primary business activities and not worry about the details of transportation management, such as fueling and maintenance.

Many trucking companies engage in outsourcing by assigning their transportation functions to other companies.

While businesses try to minimize running costs by outsourcing, some of these costs will pass to the consumer as a result of the truckers added to the supply chain.

Regardless of 2011 economic forecast, trucking companies of all sizes continue to find ways to remain in business.

Competition means trucking companies can start and collapse, allowing room for new companies to enter the industry.

“We make money whenever we have a market for our products. Our company freights refrigerated products — it just depends on where we can find our market, and Waco has been good to our business.” Rooks said.