Wednesday, March 9, 2011
The surging price of diesel fuel in California is putting a chokehold on an industry that's moves most of the state's commercial goods.
SAN DIEGO The area just north of the Otay Mesa crossing at the U.S.-Mexico border is a busy trucker's haven. There's a steady stream of traffic crossing the border in both directions. Wide swaths of land on the U.S. side are populated by truck yards. Small, medium and large trucking companies either own or rent space in the big fenced-in parking lots so they can store both trucks and trailers.
Christopher Northrup kneels next to a flatbed trailer points to the rig. The weight has to be just right. The maintenance logs must be in order. The driver can only drive so long. And the truck and trailer have to be the right size.
"And if this is three or four inches over, it's an out of service order," said Northrup. "If it is over seven inches, even inches, you can't load this bad boy."
Northrup owns CNK Trucking, a small San Diego-based company that makes most of its money shipping goods from Tijuana's maquiladoras to customers in Los Angeles. He spends a lot of time worrying about regulations, competition and complying with California's tough new diesel emission rules. Now, the cost of fuel is on his mind because his 18-wheel rigs are thirsty when they're hauling a full load.
"Between six, seven, or eight miles-to-the-gallon depending on what kind of equipment you are running, and how heavy your load is," said Northrup.
Diesel prices are over $4 a gallon for the first time since 2008. Just two and a half years ago, the U.S. Department of Energy recorded the average price nationally at about $2 a gallon. The difference between now and then is huge.
Jennifer Secord runs San Diego's Pacific Coast Trucking & Warehouse. At $2 a gallon, she said it used to cost about $90 to make a Los Angeles haul.
"And today its $4.30 a gallon. So $215 to do a trip to LA," said Secord.
Secord's company focuses on moving cargo shipped into the Port of Los Angeles and bringing it to customers in San Diego. Secord uses a fuel surcharge to help keep her books balanced in the face of rising prices. She adds about 28 percent on top of the flat fee to haul a load. But prices are rising faster than she can compensate.
"Diesel's already up to around $4.30 (a gallon)," Secord said. "That's 51 cents more than two weeks ago (when) we notified our customers. So that translates to $25 per trip."
That's a $25 cost, per load, that her trucking company has to pay for. The surcharges and higher fuel costs eventually get passed down the line, and the bill lands in the lap of consumers.
CNK Trucking's Christopher Northrup says people should pay attention to the cost of diesel.
"Everything that you buy, everything, is loaded on a truck and is eventually delivered either to a grocery store a warehouse, to a Costco, to a Home Depot, everything comes in a truck. Everything," said Northrup.
The cost of diesel may not affect consumers directly, but it has a direct impact on the state's economy.
"Diesel is very much an indicator of economic activity. More so than gasoline. Diesel is what moves goods and commodities around the globe," said Tupper Hull, Vice President of Communications for the Western States Petroleum Association, an oil industry trade group.
Eighty percent of all the goods moved in California are carried by trucks, according to the The California Trucking Association. If the cost of moving those goods goes up, the cost of the goods go up.
Higher gas prices are already changing consumer behavior, according to University of San Diego economist Alan Gin. People spend less on other goods because they're spending more at the gas pump.
The impact of higher diesel prices is more subtle, because the price hikes show up away from the gas pump.
"That is eventually built into the prices of goods at the retail level," said Gin. "So consumers are going to end up paying more for goods and that further reduces their buying power."
The real impact of the price spike won't be realized for some time. If the surge in diesel and gas prices are temporary, Gin said there probably won't be a lasting effect on the state's economy. That changes, Gin said, if Middle East worries keep the price of oil high for a while. The region's fragile economic recovery could be threatened he said.