Blaming A Collective Bargaining Issue on the Oil Companies

Everyone wants to blame their industry's poor economics on banks or the oil companies: (via a reader)

Truckers angry about the high price of fuel staged a rolling protest on
Tuesday, using their big rigs to slow traffic to a crawl on the New
Jersey Turnpike.

The protest was part of a loosely organized
nationwide effort by independent truckers to draw attention to the high
prices they face....

"The gas prices are too high," said one of them, Lamont Newberne, a
34-year-old trucker from Wilmington, N.C. "We don't make enough money
to pay our bills and take care of our family."

Newberne said a
typical run carrying produce from Lakeland, Fla., to the Hunt's Point
Market in The Bronx, N.Y., had cost $600 to $700 a year ago. It now
runs him $1,000...

"The oil company is the boss, what are we going to be able to do about
it?" said Rotenbarger, who was at a truck stop at Baldwin, Fla., about
20 miles west of Jacksonville. "The whole world economy is going to be
controlled by the oil companies. There's nothing we can do about it."

Well, we talked the other day about how oil industry profits, even at this historic high, amount to twenty cents of current gas and diesel prices.  But lets take a more direct comparison.  I looked at Google finance for ExxonMobil and Knight Transportation (a large trucker based here in Phoenix).  If you sum up sales and net income for 2006 and 2007, ExxonMobil earned 10.2% of sales.  During the same period, the trucker earned 9.9% of sales.  This is a statistical dead heat.  So it is kind of hard to say that trucking companies are suffering at the hand of oil companies when they earn the same profit margins.

So what might be the problem?  The article gives a big fat hint that it might not actually be an oil company problem:

Jimmy Lowry, 51, of St. Petersburg, Fla., and others said it costs
about $1 a mile to drive one of the big rigs, although some companies
are offering as little as 87 cents a mile. Diesel cost $4.03 a gallon
at the Jacksonville-area truck stop.

I would certainly be willing to believe that trucking companies are paying independent drivers a price per mile that hasn't kept up with fuel costs.   In particular, it may be that the independent truckers have the same problem that Bear Stearns had, ie their revenues are tied into long term contracts while their costs float short term.  I'd certainly be bargaining for either higher mileage rates or a new rate structure with a fuel surcharge.

  • Tim

    Your theory on why the truckers are bitching so much makes sense otherwise they would just raise prices. So the must be locked into contracts. Shame on them for not seeing their fuel costs as a risk to their bottom line.

    The think I fear is what is happening between the lines of what is written about the truckers strike. I think they are asking to be regulated again because the thing that is really killing them is not fuel, it is competition.

  • Dr. T

    "Truckers angry about the high price of fuel staged a rolling protest on Tuesday, using their big rigs to slow traffic to a crawl on the New Jersey Turnpike."

    And how was this different from any other weekday on the NJ Turnpike?

  • ErikTheRed

    It's a hyper-competitive situation. The problem for truckers is that they're at the bottom of the chain in the transportation industry and have the least bargaining power. They can try to negotiate with the companies that dispatch them, but those companies are being squeezed by the railroads, steamships, etc. who in turn are played off each other by shippers, freight consolidators, etc. There have been some attempts at unionization, but the unions in question are the old-school mafia-associated violent thugs that just create a set of problems that are even worse. An attempt several years ago in Southern California ended horribly with hundreds of contractors losing their trucks in the process and a few union fat cats getting rich off of the deal. There are many thousands of drivers out there, and unless they all try to bargain together then their business will just go to the ones that don't. Tough place to try to make a living.

  • skh.pcola

    Having owned and operated a truck for over 5 years, I can say that Erik has a point, and that point effectively addresses Tim's assertion, above, that truckers don't recognize fuel costs' effects on the bottom line. Au contraire, Tim. Fuel is the largest cost per mile of operating a truck. After I quit pulling dry vans because of the flaccid rates, I got into hauling dry bulk tankers (flour, cement, potash, fly ash, fertilizer, plastic pellets, etc.) where the freight rates were much higher, but sitting at a receiver unloading product using my PTO to run my blower could reduce my MPG down to around 6-7 MPG for long hauls, or down to under 5 MPG for short(-er) hauls. Fuel costs are the number one concern of truckers and trucking companies.

    Factor in oil changes, tires (10x $300+), insurance, 2290 taxes, PM, and over-priced food in truck stops, and it makes little sense to own and operate a truck these days. The best route is to be a company driver and let economies of scale absorb the breakdowns and market risks of fuel and other costs.

  • foxmarks

    Yes, there is an essential distinction often overlooked. The trucking industry is mostly large fleets with the power to make forward fuel contracts, implement fuel surcharges and renegotiate tariffs. The vocal minority are the owner-operators (and variations of single- or few-truck businesses). It's sort of like the corner hardware store competing with Wal-Mart. The o-o can't compete on costs, and their higher level of service just isn't worth as much as the "highway cowboys" think it is.

    Like most small businesses, independent trucking businesses are small for a reason: they're not run by "business people" and not for "business reasons". Truckers have been making these same complaints for four decades and still haven't learned much about finance and economics. They seem to think they're owed a living and lifestyle, just like the corner hardware guys did. It will end the same way...

  • Bearster

    Good point foxmarks.

    I just want to add one thing. Whenever someone says "the world sucks and is out to get me" he always goes on to make a demand that the government force someone else to make things OK for him, somehow. Usually with a subsidy or a franchise.

    The world is not kind to people who put a lot of capital at risk in a business without understanding the business they're getting into.

  • tribal elder

    The local hardware store is still, however, in a position where it MAY be able to add value.

    When I went to the bigboxstore for deadbolt locks, to get 3 keyed alike, two with tumblers on both sides, they looked at me like I'd landed my spaceship in the lot. They couldn't even order 'em for me- their solution- just add 3 key to my keyring.

    When I asked the kid (yes, the 16 year old kid) at the hardware store if he could order the locks, he also gave me the spaceship look--he replied - Why would you do that--I can re-key locks to your current front door in half an hour. He could. He did.

    I told the owner. I got what I more than what I'd originally set out looking for, the day I wanted, for $10 more than the bigboxstore's WRONG solution.

    I continue to vote there with my dollars. This will continue until I can get a wholesale price on a case of TIME at bigboxstore.

  • Scott

    Kind of misleading to compare margins at an oil company and a trucker. The return on capital is a much better indication of a business's quality, and the exxon's is twice knight's.