High diesel prices have a troubling ripple effect

Sharp and sustained rises in diesel prices are squeezing New Hampshire businesses that rely on trucks, especially companies who are locked into fixed contracts with their customers, such as loggers.

“I can’t charge a surcharge,” said Chris Crowe, owner of CR Crowe in Littleton, who delivers logs and chips to mills and wood-to-energy plants throughout northern New England. “I’m getting paid the same price as a year ago, and in some cases, the price has gone down.”

Crowd said he uses about 5,000 gallons of diesel a week. The average price of diesel has risen almost $1.00 per gallon since January 2007, and so far “the increase comes right out of my pocket,” Crowe said. “I don’t have much left for truck payments or capital reserves.”

The fuel cost problem isn’t just affecting truckers. According to Barry Normandeau of Groveton’s Normandeau Trucking, cut wood is sitting on land. “The pulp mills are starting to see a shortage,” he said because “truckers can’t afford to haul the wood.”

This could mean higher prices for pulp wood, which would benefit truckers, and possibly have an impact on the already weakened paper industry. Within the past two years, three mills have closed in the North Country.

“There are ripple effects with everything,” Normandeau said.

Some businesses include fuel escalators in their contracts, such as Normandeau’s waste-hauling business. “We built the fuel escalators into all our contracts after the first price spikes in 2002. We cover about 80 to 90 percent of our added costs.”

School buses also are heavy users of diesel. Jim Schumann, regional vice president of First Student — which supplies about 30 percent of school buses operating in New Hampshire — has a mix of all fuel and fuel escalator contracts.

“About 60 percent of our contracts allow us to charge for fuel price increases,” he said. Still, he added, “fuel is now our second-largest cost, next to labor.”

Seeking relief

The impact of high diesel prices is being felt statewide, on all types of businesses.

Bob Scully, executive director of the New Hampshire Motor Transport Association, said, “Fuel is a big, big cost of business. And most of the cost will eventually be passed on to the consumer.”

Scully’s organization represents 400 members, 25 percent of whom are for-hire carriers. The remainder are private carriers, companies hauling fuel oil, groceries and other products. Scully points out that 10,000 trucks are registered in the state, and of that, half are single-truck operators.

“If costs continue to rise, some will be put out of business,” he commented. “It hurts the independent trucker the most.”

Scully doesn’t see any easy solutions. One suggestion is to rescind the state’s 18-cent-a-gallon tax on diesel but, he said, “if we rescind the New Hampshire diesel tax that means less money to maintain the roads.”

In Maine, loggers and truckers have been active in seeking relief. Tom Cushman, owner of Maine Custom Woodlands in New Gloucester, uses about 3,000 gallons a week. “The price has gone up 80 cents in the past 10 or 12 weeks. It’s like having three or four extra employees who don’t do anything,” he said.

He joined 400 loggers and truckers to form the Coalition for Lower Fuel Prices, which has met with limited success in asking for state government help.

On Nov. 20, Gov. John Baldacci signed a Declaration of Civil Emergency in response to the effect high diesel prices are having on the wood products industry.

“We didn’t get everything on our list,” said Cushman. “Most of the measures are temporary Band-Aids.”

Among the measures are speeding up the return of property taxes and off-road diesel taxes, rescinding sales taxes on parts and supplies and increasing load limits on selected highways.

Baldacci also has promised giving a voice to the industry in developing energy policy.

In New Hampshire, Gov. John Lynch has met with logging industry representatives and is working with the Department of Transportation to review routes and load limits on roads and bridges.

According to the Energy Information Administration, the Department of Energy’s statistical arm, the increase in costs is complicated by several factors.

A recent report, “Why are Oil Prices so High?” cites global demand, lower-than-expected non-OPEC supply growth, geopolitical factors affecting OPEC countries, lack of spare OPEC production capacity, and lack of refining capacity. The report denies Wall Street speculation as a cause of higher prices, although there are those who think otherwise, including Oppenheimer & Co. analyst Fadel Gheit, who was quoted recently on CNNMoney.com as attributing the recent run-up in prices to “pure speculation.”

Congress is working to address the issue on several fronts. U.S. Sen. Olympia Snowe and U.S. Rep. Tom Allen of Maine, along with New Hampshire’s two representatives in Congress, Paul Hodes and Carol Shea-Porter, have co-sponsored several bills, either passed or pending.

Mark Sullivan of Allen’s office said, “We’ve seen interest and support grow dramatically for the energy-related bills.”

On Dec. 14, the Senate passed S.2058, the so-called “Close the Enron Loop” bill. This seeks to increase federal oversight of electronic energy markets. President Bush signed the Energy Independence and Security Act on Dec. 19, a proposal to increase vehicle fuel efficiency and promote alternative energy research.

Allen himself sponsored the Small Business Relief Act, which will provide tax credits for fuel use and raise the Internal Revenue Service mileage rate. That bill is pending. Also pending in the Senate is the Federal Price Gouging Prevention Act, which passed the House, 284-141, in May 2007.

While this activity at the federal level is encouraging those businesses affected, no easy answers are apparent. As Chris Crowe said, “I’ve been wracking my brain trying to come up with a solution.”