Gas Prices Affect Small Trucking Companies
Though diesel prices have historically been lower than gasoline prices, prices are now soaring. With diesel prices rising high above gasoline prices, many small trucking companies are being suffocated and forced to close their doors.
The majority of American trucking companies operate less than 20 trucks, operating as small, locally owned businesses. These small companies are faced with fierce competition from the few big name trucking companies.
The trucking business has always been competitive and significantly over populated, but the increasing fuel costs have been the deal breaker for many small companies. Small trucking companies are often charged with bringing goods into a district, but limited manufacturing can restrict their ability to take loads out. This lowers these businesses' overall profit margins.
The majority of small trucking companies are operating on less than a six percent profit margin, making survival difficult when the costs to break even continue to rise. Since the economy took a down turn, companies have been struggling to keep up with their overhead costs. Everything petroleum based has gone up in price, making this struggle even more challenging.
According to the U.S. Energy Information Administration, the price of diesel has risen from $2.99 per gallon to around $4.15 per gallon in the last two years alone. Most trucks average only six miles per gallon of diesel, making this expense astronomical. Unfortunately, diesel is also federally taxed at a rate that is 25% higher than gasoline, making the economical strain on small companies even more extreme.
In the past four years, more than 1,700 local businesses have been forced to close due to rising gasoline and diesel prices. Many businesses are now finding that fuel is one of their highest expenses, where prior to the economic downturn this was not the case. Some companies are fortunate enough to pick up business from others around them that have closed in recent months and years, but even these more successful businesses are feeling a severe decrease in their profit margin.
Despite the increasing fuel prices, small trucking companies are forced to keep their prices low to satisfy consumers. And with a new Environmental Protection Agency requirements to upgrade trucks with more environmentally friendly engines, small business costs are at an all time high. As if the steep cost of an environmentally friendly engine weren't difficult enough for small companies to maintain, these engines are also significantly heavier than older engines, causing even greater strain on trucks' gas mileage. With the increased overhead prices, many companies will not be able to survive if diesel prices continue to rise.
There are so many obstacles stacked against small truck reliant businesses that recovery from the recent economic crisis hardly seems possible. Despite this, a number of businesses are beginning to regain hope. In the past year, larger trucking companies have seen improvements in their profit margin, but small companies are barely beginning to see economical improvements. Though it is taking time, things are beginning to improve for these local companies. Daniel Murray, Vice President of Research at American Trucking Research Institution, thinks small companies can recover if fuel prices stop increasing. "I think if this recession had extended another one or two years, you'd have seen trucking industry bankruptcies skyrocket," he said.