Van’s Delivery Deals With Market Demand Shifts
GRAND RAPIDS — Fuel surcharges are the talk of the trucking industry — and also among the shippers who rely on the trucks.
With diesel fuel approaching $4.50 a gallon in mid-May, the fuel surcharge that trucking companies add to their invoices is "a huge issue to us right now," said John E. Nieuwenhuis, COO of Van's Delivery Service Inc.
In mid-May, Van's was adding 54 cents per mile to its cost of moving a load, which Nieuwenhuis characterized as "a huge amount."
"On some loads, (the fuel surcharge) might equate to 35 or 40 percent of the gross," he said. "I just quoted on a load from Illinois to Grand Rapids. The line-haul rate was $500 and the fuel surcharge was $185, or 37 percent."
Van's, which has 60 trucks operating all over the Midwest and into the Northeast, has had a fuel surcharge since 1996. It has fluctuated over the years, even to the point where it once went away briefly, according to Nieuwenhuis.
There is no governmental regulation of fuel surcharges. Some companies charge per mile and some as a percentage of the line-haul charge. The surcharge isn't intended to cover all the cost of fuel, just the increase above a base price per gallon. But lately the increases have been so large and frequent that sometimes the surcharges lag behind the actual cost.
"As the surcharge is typically established on Monday based on the prior week's fuel cost, and the price increases rapidly during the week, you are actually falling behind on capturing the cost increase," said Nieuwenhuis.
Some shippers set their own fuel surcharge schedule that they expect their carriers to use.
"Some are fair and some are not. We walk away from business where we can't recover our increased fuel costs," said Nieuwenhuis.
The fuel surcharge has also become an impediment when the trucking companies attempt to raise their base rates.
"Needless to say, our other costs are all increasing," said Nieuwenhuis. "But when a customer is already paying a significant fuel surcharge, it is very difficult to get them to accept an increase in the base rates, as well."
"Somebody's got to pay somewhere along the line. We're all going to end up paying, is what's going to happen," he said.
Transportation cost increases are undoubtedly part of the reason for rising food prices.
Fuel has "gone up about a buck and a half a gallon or so, in the last year. In some instances, it's now the largest cost component of a trucking company, surpassing even wages," said Walt Heinritzi, executive director of the Michigan Trucking Association.
The fuel bill for the U.S. trucking industry for 2007 was estimated at $112 billion, he said. The expected cost for 2008 is $141 billion.
Nieuwenhuis predicted that "some of the weaker players" in the trucking industry are going to go out of business.
"I think we're starting to see a little bit of that even around GR," he said.
At the same time, he noted that "there are still guys running for less than cost."
That's because there is still an excess of trucks competing for the number of available loads in the U.S., according to a recent article in U.S. News & World Report that reported on research done by a trucking industry analyst.
Nieuwenhuis is confident about the future for long-established trucking companies such as Van's. He said he believes reputable shippers are going to stick with a familiar, reliable carrier "and pay what it takes" to keep that carrier in business to ensure that there will be trucks available in the future when needed.
Meanwhile, the carriers are trying to cut costs. Drivers for Van's are urged to plan their routes carefully to eliminate wasted miles.
Van's has even opened a small base in Pittsburgh for a major customer there who uses three of their trucks regularly.
Nieuwenhuis said some shippers are looking at rail as a lower-cost alternative to trucking.
"We run a rail siding here through our logistics operation and we're seeing a lot of increased interest there," he said. Van's trucks deliver shipments of lumber and particle board that arrive on box cars, and the trucks also transfer outbound shipments into the box cars, including "a fair amount of hardwood lumber that, believe it or not, goes to Mexico." Other bulk materials that Van's has been quoting on, which would entail long-distance rail shipment, are bricks and wood stove fuel pellets.
"I think you will see growth of intermodal," he said, which means putting a semi-trailer or shipping container on a train in a distant place such as California and bringing it to Grand Rapids by rail. From the rail siding here, the semi-trailer or container is then delivered by truck.
Nieuwenhuis has a global perspective of the fuel price escalation currently afflicting America. He noted that a friend in England recently pointed out that fuel costs there are equal to $11 dollars a gallon.
Van's is a full-service logistics firm with three warehouses in northwest Grand Rapids. It specializes in flatbed trucks, making single or multi-stop deliveries and pick-ups throughout Michigan and the Midwest. Van’s also has a brokerage service authorized to operate throughout the U.S., and intermodal drayage for full containers and LCL (less than container load) shipments with its partner, Masselink Brothers.
The company, which has a total of about 75 employees, is run by its president, Ron Van Zytveld, grandson of the founder, and Nieuwenhuis, who is related to the Van Zytveld family by marriage.