With the cost of gas and diesel soaring, distributors are looking for down-to-earth ways to control their fuel costs.
With the nationwide price for a gallon of gasoline now above $4 and above $4.70 for a gallon of diesel, the enthusiastic “save the world” idealism of environmentalists has spread to become a grim, “save my business from ruin,” among business owners and executives and increasingly, “save my family from poverty,” among a growing mass of low-to-middle-income individuals.
The reality is that gas prices show no sign of backing down anytime soon. That means all businesses will see continuing freight surcharges and price increases on all kinds of materials — especially anything that must be shipped a long distance — and any business that includes a fleet of trucks making deliveries to customers will have steadily increasing incentives to find ways to cut back on fuel expenses. If you're like most electrical distributors, that means you.
If it's any comfort (it's not), you're not alone.
A recent morning spent gathering news reports from across the country showed the scope of the problem — we found stories on people, businesses and organizations from all walks of life wrestling with ways to cut down on travel and cutting corners on essentials to pay for the fuel they can't avoid using. Rescue helicopters, truckers, airlines, soccer moms, boaters, fishermen, summer tourists, small airports, amateur pilots, school buses, police, fire and rescue departments, the Pentagon and military forces in Iraq and Afghanistan, bands on tour, retirees in their recreational vehicles, mass transit systems, cab drivers, high school athletics programs, trash collectors, farmers, elderly meal service programs, florists, courier services, pizza delivery drivers, landfills, sushi restaurants, teenagers accustomed to dragging Main St., NASCAR drivers, even Nevada brothels (those that rely on service to truckers, anyway) are feeling the pinch and looking for ways to adapt.
A sheriff's department in Texas is cutting back patrols and only sending out cars if someone calls in trouble. Another sheriff's department in Ohio is putting deputies in golf carts. City governments in several places are adding surcharges on top of existing fines for speeding violations. School districts are cutting back bus routes. Airlines are cutting back flights and freight companies such as FedEx and UPS have been warning Wall Street about the harsh impact fuel prices are having on their operating margins. Many governments and businesses are letting employees cut back to a four-day work week to cut 20 percent from their commuting fuel costs, offering refunds for public transportation and taking steps to encourage bicycling to work.
According to a recent poll by the Associated Press and Yahoo, fuel prices have eclipsed all other concerns — including the wars in Iraq and Afghanistan, the housing market collapse, immigration, civil liberties and the environment — as the political concern that could sway how they vote in the November elections.
The reasons for the price increases are, of course, a topic of constant and heated debate. Strengthening worldwide demand, especially in developing countries; declines in production at some major oil fields and a shift to “dirtier” crude that's more expensive to extract, transport and refine; governments of major oil producing nations changing the terms of oil production agreements and alienating exploration and production companies that have the expertise to find and exploit new reserves; limits on domestic exploration and on construction of new refining capacity and pipelines; the weakening value of the U.S. dollar, and rampant speculation by investors are among the more accountable pieces of the puzzle. Though there's no shortage of people ready to blame oil companies for rapacious greed and to seek out evidence of a worldwide evil conspiracy. Whatever the driving forces turn out to be, the reality is that the combination of these factors are likely to keep fuel prices aloft for a long time to come. And the pain they cause will not end soon.
So, what can you do?
Avoid eating surcharges
Distributors have told us that most, if not all, of their vendors are routinely adding freight surcharges to their product shipments. Coming in the midst of a slowdown in the economy generally and a collapse of the residential construction marketin particular, distributors need to find a way to pass those costs on through the chain. This is easier to do in some markets than in others.
Residentially focused electrical contractors seem especially resistant, as most distributors have been providing them with “free” delivery since time immemorial (and given the recent slowdown in housing construction, they probably have more time and incentive to go over their invoices in great detail).
“We looked at implementing a fuel surcharge, but we concluded that, particularly in the contractor world, the contractors are not willing to pay a surcharge,” says Greg Hames, president of Viking Electrical Supply, St. Paul, Minn., a subsidiary of Sonepar USA.
The reaction wasn't screaming and hollering contractors, just a disruption in accounts receivable, he says. “It became an accounting nightmare, because the contractor would just hold the invoice, and not say anything, and would miss payment for 30 days, just for a $3-$5 surcharge.”
Industrial customers are generally more accepting of a surcharge, and recently have come to expect it. Some distributors paved the way for this long ago, by shifting freight to a fee-for-service model rather than rolling it into the price of the product.
Standard Electric Supply, Milwaukee, which concentrates primarily on industrial maintenance repair and operations (MRO) and original equipment manufacture (OEM) markets, has found little resistance to recouping its freight costs, says President Larry Stern.
“Eighty percent of our business is shipped UPS, so we don't have a big fleet of trucks,” says Stern. “But we've charged freight if you don't exceed a minimum order amount for a number of years. We charge a UPS fee or common carrier fee, then we have ourselves embedded in that freight cost. As fuel has gone up, we've increased that every year.
“This goes back to 10 or 11 years ago. We recognize freight as a service, and there's a cost to that, so we shifted to a charge, and have been able to maintain that. My feeling at that time was that people were getting comfortable buying over the Internet or from a catalog, and paying freight was just part of it. We did it, not because we thought the cost would explode, but we thought the customer was ready for it.”
Stern adds that his company does maintain a list of freight-exempt customers who meet certain profitability goals.
Beware the gimicks
Surcharges aside, you can take other steps to reduce the fuel expense for your fleet of delivery trucks. By and large, this does not include bolt-on fuel system modifications or fuel additives, tons of which are coming into the market in response to soaring fuel prices. Their marketing pitches promise astounding fuel savings, sometimes up to 20 percent to 30 percent. If you want to believe these unknown entrepreneurs have found a technique or device or additive that has escaped the notice of thousands of well-funded automotive engineers and researchers for years, go ahead and plunk down the money and give it a shot. But be aware that modifications can void the manufacturer warranty and some of the fuel additives can wreck your truck's fuel system.
To be safe, it's better to check the Federal Trade Commission's website at www.ftc.gov/bcp/edu/pubs/consumer/autos/aut10.shtm. The FTC has tested many of the products on the market that claim to radically increase gas mileage. Thus far they have found just a few that increase efficiency by even a fraction of a mile per gallon (many of these are aerodynamic modifications) and many that are worthless or actually cause damage to your vehicle.
Focus on the driver
Driving techniques have the greatest impact on fuel economy, and speed is the single biggest factor. So the best place to start is by educating your drivers about ways to reduce wasted fuel while they do their rounds. Many long-haul trucking companies have speed limiters installed on their trucks, and many are finding lately that dialing back those limits by as little as two or three miles per hour yields significant fuel savings. National trucking company Con-Way, for example, has been able to save 3.2 million gallons of fuel per year just by cutting the trucks' top speed from 65 mph to 62 mph.
Beyond speed reduction (which also yields lower costs through increased safety), the prevailing wisdom in the trucking community is that anything you can do to cut down on the time the truck idling pays significant dividends. Many trucking companies use onboard computers that record idling time and some are basing their driver compensation in part on pushing that number ever lower. Other time-honored principles of efficient driving still apply — accelerate and decelerate as smoothly as possible, use cruise control to your advantage, select the highest gear suitable for the desired speed, avoid using climate control unless you really need it, don't start the vehicle until you're ready to pull out, and don't waste time warming the engine — it works better to warm the whole drivetrain by driving gently for the first few miles.
Be ready to make other adjustments in your operations based on the change in driving styles. Viking Electric has implemented a speed cap on its drivers, but has had to change much of its receiving routine accordingly. “The speed cap extended the longer routes we run, such as inter-branch transfers from Minneapolis to Milwaukee,” Hames says. “We had to readjust our schedule for incoming freight. The trucks that used to come in at 4 a.m. now get here at 6 a.m., so we're scrambling to get stuff unloaded and reloaded. We now encourage additional overtime as people wait for those transfer trucks to come in.”
Refine route planning
The area where technology can help you most in the short term is by investing in the latest generation of route-planning software. Recent advances in GPS, mapping, onboard monitoring and such can be combined with sophisticated systems for finding the most-efficient route among a number of stops and return significant results. If you're not willing or able to invest in such a service, take time to refresh your team on basic principles of routing efficiency, such as doing the long run first to get the engine warmed up to its peak efficiency before the first stop, and then working your way back; grouping stops in close proximity to minimize turnarounds and idling; eliminating deadheading with an empty truck wherever possible.
Stay in tune
It pays to become a stickler for fleet maintenance, especially the basics such as proper tire pressure, good tires, fresh oil and clean paint.
Join a group
Fuel cards that give you a discount on large-volume purchases fuel over time can help reduce the pinch of fuel costs significantly. You can also join purchasing groups through associations, such as NAED's agreement with Conoco/Phillips. The downside to joining up with a particular petroleum marketer may be what one distributor in the Midwest found — that at one of his branches, the trucks would have to go 40 miles one way to fill up.
Viking Electric uses a third-party fuel company that comes to the branch overnight and tops off all the tanks while also providing a discounted per-gallon rate for fuel, Hames says.
Upgrade your fleet
This may not be the time for most distributors to run out and buy new trucks, especially with more-efficient technologies due to appear on the market in a couple of years, but it's worth considering moving the replacement schedule up a bit. Take a look at the most efficient vehicles on the market, wh-ich feature not just more-efficient engines, but streamlined designs, reduced weight and other benefits. If you lease your vehicles, the lessor should be able to give you figures showing return on investment (ROI) on your various truck options.
Get used to it
It's best to approach high fuel costs as the new normal. The world is just on the front end of dealing with this situation, and it may well get worse before it gets any better. But the future also has a certain brightness to it. Place some trust in the adaptability of the U.S. economy. Once the market rebalances and the new normal is established, the shockwaves of price increases should subside. The higher prices for oil-based fuel is already feeding research into alternative energy sources. Eventually, we may start to see plug-in electric tractor-trailers, or at the least trucks that achieve radically better fuel mileage, which will have to compete with emerging technologies as those become more economically viable.
We'll also see new ways of doing business that reduce long-distance freight. Already, there is widespread talk of manufacturers (in general, not specifically electrical) looking for more local or regional production advantages closer to the point of sale. The globalization of the past decades has been made possible by low-cost fuel and advances in distribution efficiency. As businesses begin to adapt to the new calculus of end-to-end fuel efficiency throughout the supply chain, be on the lookout for new opportunities to lead the market.
Gas Mileage Extremists
If you really want to get out on the leading edge of vehicle efficiency, do an Internet search on the terms “hypermiling” or “ecodriving.” There are several websites devoted to pushing a car for maximum gas mileage, and some of its afficionados report mileage approaching triple digits, even without a hybrid drivetrain. Much of the discussion on sites such as ecomodder.com involves modifications that may or may not be appropriate for delivery trucks, but the more useful part goes deep into driving techniques. Among the more interesting of these is the “pulse & glide,” where the driver accelerates to above his desired speed, then cuts the engine or puts the car in neutral to coast until it falls below the desired speed, then does it again (don't do this in freeway traffic, but NASCAR drivers sometimes use this technique under caution flags to conserve fuel). Such techniques may be extreme, but they might suggest a competition among your drivers to see what works best in your driving environment.