Julia and Lari Tadehara of Murray sank their life savings into their car-hauling business. They were losing $5,000 a month in recent months and finally parked the truck just weeks ago.
"You've got to get real; it's just not working," Julia Tadehara recalls telling herself. Their 10-vehicle car-hauler is in a repair shop for maintenance before the Tadeharas sell it to recover some money.
Business became difficult for them beginning this past December, when the price of diesel fuel began to spike. Complicating the problem was the fact that fewer cars are being transported across the United States in the current economic downturn.
"We were making enough to pay for fuel, but not enough for the driver, and nothing came to us," she said.
A year ago, the national average price for a gallon of diesel fuel was $3 per gallon. Diesel is now about $4.78 a gallon, and in some states, it's past $5 a gallon. The result is that at least 935 truckers nationwide have gone out of business in the first part of this year, according to a recent study, and the numbers could rise.
Independent drivers and small companies cannot easily absorb the rising cost of fuel, because they can't buy fuel in bulk at wholesale rates or afford trucks with better technology to control speed and other functions, like the large companies do, said David Creer, executive director for the Utah Trucking Association, which represents about 400 national and local trucking companies, such as C.R. England and FedEx Freight.
The small companies also tend to log more "empty miles" miles driven without paid freight. The truckers that remain in the industry are having to make adjustments to survive.
Some companies have tacked on fuel surcharges which become noticeable to consumers when prices for food and clothing rise.
About 70 percent of the goods Americans use are delivered by trucks, Creer said. In some communities in the West, it's nearly 100 percent, because of isolation and fewer rail lines."I think there's plenty of capacity to move the goods we need," Creer said. "The bigger issue right now is the cost of moving those goods. And that's going to be the tough one for everyone to swallow. The increase in freight charges increases costs of all goods. It won't be as competitive of a market, of course, if you have less (trucks) out there."
The Tadeharas started their business with high hopes. They began in 2003, shortly after Lari Tadehara became disabled and could no longer work. They hired a driver and hoped the car-hauling business would provide extra income. The business did so well that they purchased a second truck, later selling it because of the high loan payments.
But the Tadeharas couldn't break even on some trips in recent months because of the price of fuel. For a trip to haul cars to San Francisco, they were offered $450, and with current prices, fuel would have cost at least $592.
The truck got good fuel mileage 5 1/2 to 6 miles a gallon, considered enviable when a car-hauler is transporting 80,000-pound vehicles. But the Tadeharas also had to pay for insurance, maintenance, registrations and other costs. The way the Tadeharas figured it, it cost $1.87 a mile to transport cars, and they needed $2.50 a mile to make money.
Now that they are out of the car-hauling business, the Tadeharas are looking for another way to supplement Julia's income at Louise Gardens nursery. A mechanic by trade, Lari Tadehara is considering starting a company that would convert car engines to burn natural gas.
Of the 935 trucking companies that went out of business in first quarter of 2008, most averaged 45 trucks, higher than the last wave of trucking-business failures in 2000 and 2001, when companies averaging 20-35 trucks went out of business, according to a report by research firm Avondale Partners LLC.
"This, in our mind, suggests an ever-widening gap between the 'haves' and the 'have nots' in the industry," wrote analyst Donald Broughton.
The actual number of trucking companies that went out of business is probably more than 935, because Broughton collected data from creditors and didn't count many companies with one to three trucks.
In addition to the out-of-business trucking companies, more than 42,000 trucks about 2.1 percent of the nation's over-road, heavy-duty truck capacity were idled in the first quarter of this year as fuel prices rose.
Trucking companies have struggled because of higher prices on all fronts except for labor, Broughton said. Re-licensing and insurance costs at the beginning of the year pushed companies "that were teetering on failure, over the edge."Freight brokers, the companies that arrange loads for truckers to pick up and deliver, have become aggressive in pricing. But some shippers, the companies that produce goods for truck delivery, have refused to pay fuel surcharges. And some brokers have not passed on the fuel surcharges to the truckers, Broughton said.
Adapting to change
These days, profits are so tight in Richard Mackay's trucking business that he deducts money from his driver's paycheck when he doesn't achieve 5 miles to the gallon.
Mackay, also a car-hauler, started Dealers Auto Transport in South Salt Lake, to help his other business, auto dealership C&R Motors, when there weren't enough drivers or trucks to move cars from Chicago auto auctions to the dealership.
But the housing bubble burst last fall, and as banks have tightened their lending standards, fewer people have taken out auto loans. Mackay hasn't been selling enough vehicles at the dealership to keep his truck running.
Then diesel prices began to rise. So Mackay has formed new business plan: The car-hauler will transport for other companies, the large car-hauling companies that have extra loads but not enough trucks in their fleet to make deliveries.
The idea is the car-hauler will make more money on the road more frequently, loaded with freight each way of the trip. As for the dealership, Mackay thinks another car-hauler can move vehicles for him, and he'll make more money in the long run.
"We hope that works," he said.
The average trucker makes about $40,000 a year, said Norita Taylor, spokeswoman for the Owner-Operator Independent Drivers Association, and they aren't getting any richer from the recent increases in fuel. "A lot of truckers have parked their rig temporarily and have worked another job, or they've parked it and gone to work as a company driver for someone," Taylor said.
Vicky Clark, recruiter for James H. Clark and Son Inc. of Salt Lake City, has received more phone calls in recent months from drivers looking for work, because trucking companies with one to five trucks have gone of business.
"Hiring one or two truckers a week, we can be a little pickier," she said.Creer, with the truckers association, said the ability to hire quality drivers is a positive for the trucking industry: "We had been suffering from a driver shortage and still are."
Passing along costs
Chris and Tara Dobson of North Salt Lake always drive as a team, with one driving while the other sleeps. Trucking is a second career for Chris Dobson, who has a psychology degree from the University of Texas at Austin and worked for almost a decade in sales and marketing. He and his wife chose trucking because she was looking for a new job, but the couple only had one car between the two of them.
"What about trucking?" she said. "He laughed at me."
The couple researched the industry and got their commercial drivers' licenses in 2003. They drove for a trucking company before starting Dobson Transport in August 2006.
They have documented their costs for diesel fuel: They paid $32,310 from January through May of 2007 and $54,175 in that same period this year.
But the couple has made more money from invoices this year: $139,337, up from last year's invoices of $111,873. They're not driving any more freight than last year. They've simply increased their shipping rates.
They pocket the profits on their weekly trip to Raleigh, N.C., delivering Idaho potatoes to a grocery wholesale company because they negotiated the contract directly with the shipper. When fuel goes up 20-50 cents, they ask for more money, and the wholesaler complies, Chris Dobson said.
On the way back West, the Dobsons transport mattress ticking fabric from Statesville, N.C. That contract is negotiated through a booking company, but the Dobsons get most of the profit and all of the fuel surcharge."If you're providing good customer service, there would be no reason you shouldn't go to people saying, 'Look, we need more money because our prices are going up,"' Chris Dobson said. "People who can't increase their rates, they're the ones who are really having a hard time, and they're the ones going out of business."
Seeking full disclosure
Taylor, the spokeswoman for the independent-truckers association, said her group advises truckers to be fully cognizant of all their operating costs and to make sure that they are covering all of their costs whenever they accept a haul. "Sometimes that means implementing a fuel surcharge if they can negotiate that into a contract," she said.
Booking companies and logistics intermediaries that connect shippers with truckers don't always disclose how much money they're pocketing. The association currently supports a bill, the Trust in Reliable Understanding of Consumer Costs Act, that would require intermediaries to pass fuel payments and fuel surcharges directly on to the trucker or company that is paying for the fuel.
The Dobsons, meanwhile, have changed their driving habits to save on fuel removing the bug shield to improve aerodynamics, and reducing the number of breaks at trucking and rest stops to save fuel that's wasted on slowing down and speeding up.
"We used to drive 67-68 mph; now we're going 60," Tara Dobson said.
That adds about five hours to their weekly driving time. Last year, they'd arrive in North Salt Lake on Saturday morning. Now it's Saturday afternoon. The net result is a half day cut from their weekends. Their work week starts on Tuesday mornings.
"There's a lot of good people having hard times," Chris Dobson said.
But the couple hopes to eventually expand their business by buying two to three more trucks and hiring drivers."The more and more companies that go out of business, when things turn around, I'll buy their trucks and their routes," he said.