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Northern California trucking business strains under soaring diesel prices, tough driver recruiting

As president of a logistics and warehousing company with about 300 big rigs rolling in seven states, Andrea Biagi is worried about soaring costs to fuel them and how to keep and attract talent who drive them.

Even as her company is assessing the real-world benefits of zero-emissions fleet, it and the entire U.S. trucking industry is reeling from unprecedented inflation in diesel prices since fall 2020. Costs have well past the $5-a-gallon previous peak in summer 2008 amid the global economic crisis, according to the latest federal data.

The California average retail price of diesel for highway use jumped in the past 12 months by 68.6%, or by $2.80 a gallon, to $6.89, according to June 13 data from the U.S. Energy Information Administration.

That’s well above the national average price of $5.72 a gallon, which was 74%, or $2.43, higher than a year before. Dwarfing California’s price jump was that of New England, where the diesel average rocketed up 91%, or $2.90 a gallon, and concerns have been growing of a fuel shortage.

“It’s a huge financial impact, like it is for the average consumer,” Biagi said.

With the price surge, the company’s fuel bill for the first five months of this year is already $100,000 higher than that time frame last year, she said.

Trucking companies and others with fleets of diesel vehicles often don’t pay retail station prices, opting for commercial cardlock fueling centers or bulk deliveries.

Biagi Bros. has multiple fuel tanks that can hold as much as 1,000 gallons of diesel distributed among its 3.5 million square feet of warehouses and distribution centers in Napa Valley, Southern California, Washington, Arizona, Texas, Oklahoma, Illinois and Florida.

The company often pays 50 cents to $1 a gallon less for bulk fuel than retail diesel prices, which are topping $7 a gallon in various North Bay locales.

“We watch the prices, and then even if (a tank is) half full, we'll buy (fuel) if the price dips a bit,” Andrea Biagi said. “But we don’t have capacity for a month’s worth of fuel.”

Fuel surcharges are common in the logistics business. They are intended to create an average price of fuel to offset fluctuations that can happen from day to day, even outside of an inflationary economy.

The surcharge typically is based on such factors as the weekly federal regional pump survey price, fuel mileage (typically 6 miles per gallon with a loaded trailer) and a carrier’s base fuel price (cost of operation per mile). Carriers often represent it as a per-mile surcharge or a percentage of the total freight charge.

“I’m charging a 61% fuel surcharge, and that’s not high enough,” said Adam Doss, president of Santa Rosa-based Doss Logistics, noting that it isn’t applied to such add-on charges as a tarp over a load.

A year ago when the California retail diesel average was $4.08 a gallon, the company surcharge was 33.75%.

“I've outpaced all my customers’ fuel-surcharge sheets. We’ve had to keep running the numbers up,” Doss said. “It affects tires. It affects filters. It affects every polymer in the truck. And it affects my drivers, the ones that live so far away. We're having more sick days, because they just can't afford to get to work.”

Some drivers, who had been eager to travel as far as 40 miles for jobs based at one of Doss’ six truck terminals in Northern and Southern California and Phoenix, are now looking for opportunities closer to home. From 120 drivers at the beginning of the year, the company is now down to about 100.

The cost of fuel is throwing conventional logistics company budgeting out of whack. An industry rule of thumb has been for one-third of company cost per truck to be allocated each to fuel, driver and vehicle. But Doss is now having to plan for fuel costs to amount to about 40%.

And with more driver incentives, the higher fuel cost is pushing the budget for the fleet lower.

That’s on top of a shortage of large trucks for over a year, which is leaving carriers with fewer options for rentals if a fleet truck breaks down.

“A lot of people are holding onto equipment and parking their trucks to make their own rental fleets,” Doss said. His company has one truck per terminal set aside for that purpose now, to avoid leaving customers without shipments and drivers with fewer wages.

Driver shortage?

The trucking industry is somewhat divided on how many new truckers are needed.

American Trucking Associations, which represents the industry’s largest carriers, late last year estimated that the country needed 80,000 more drivers, noting that the profession has an aging, almost entirely male workforce.

However, the Owner-Operator Independent Drivers Association said big challenges to getting more drivers is the lifestyle of long-distance trucking and challenges such as hours that can be wasted in long queues at freight terminals.

In March of this year, the U.S. Department of Labor and the Trucking Alliance announced a plan to expand registered apprenticeship programs at trucking companies, and over 70 companies pledged to do so. The alliance is a coalition of freight transportation and logistics companies, and it focuses on safety.

At Biagi Bros., the company has had to get more aggressive in attracting drivers. At the beginning of this year, the company had roughly a dozen open driver positions in Northern California alone but by June had cut that shortfall in half.

Among the changes the company has made in recruiting drivers is cutting its requirement for three years of commercial truck experience to two.

“Before we wouldn’t hire a guy who had five jobs in the past 10 years, and now we will,” Biagi said.

Another change is starting a driver-training program, starting with its Southern California facilities. The company has started pairing a licensed candidate with no job experience with an experienced driver, and five had completed that program so far.

Though there has been talk about recruiting drivers as young as 18, that’s currently a big problem for companies.

“It’s almost impossible, we found, to get a person under 21 insured,” Biagi said.

Truckers have been listed among the heroes of the pandemic, making possible the massive shelter-at-home then work-from-home shift that started in March 2020.

That is reflected in California’s job statistics.

Non-farm employment in the state in April, the latest available, totaled 17.4 million jobs, barely above the 17.3 million three years before, prior to the virus, according to the Employment Development Department.

Meanwhile, California truck transportation jobs in April totaled 150,000, up 14.5% from three years before.

“Trucking, and more particularly general freight trucking, appears to be one of California’s stronger growth industries, which implies strong demand for truck drivers and more truck drivers filling these positions,” an Employment Development Department spokesperson told the Business Journal.

Battery and fuel-cell heavy trucks

Amid the spike in global oil prices helped along by the embargo on Russian petroleum, California continues to move forward with its plans to phase out greenhouse gas emissions from transportation in the next decade and a half.

Among the technologies that are currently being tried out for large commercial trucking are tractors powered by batteries only and by hydrogen fuel cells. Biagi Bros. and Yandell Truckaway, which has a Benicia terminal, in the past two years have been testing battery-powered class 8 tractors.

Biagi Bros. has been road-proving a 2019 Peterbuilt model 579 semi under a lease agreement with battery-conversion provider TransPower. That deal includes validating the truck’s performance under normal freight conditions.

So far, the results have been disappointing, Biagi said.

“We need to turn a truck several times a day, which means we need to go deliver more than one load per day to be profitable,” she said. “And these can go about 200 miles, which for us is about a load. Then they have to plug in to power for eight hours.”

With the potential for California summer power blackouts because of grid demand and wildfire prevention, the company is concerned about what would happen if it had all 80 of its Napa Valley-based semis as battery-powered versions, all plugged in at once.

That’s why the carrier has been working with Arizona-based Nikola Motors, which has been developing fuel-cell heavy trucks that convert hydrogen gas to electricity. The truck tanks can be refueled in under a half-hour and can run for upwards of 300 miles under load.

One of the Biagi Bros. facilities is next to Anhauser-Busch’s Chicago-area brewery has been validating a Nikola class 8 tractor for a couple of years. Then earlier this year, Biagi drivers in two Nikola tractors pulled Anhauser-Busch loads through the Southwest.

“They went from Arizona to Los Angeles with no problems,” Biagi said. “The issue is infrastructure. There is not a lot of hydrogen (fueling stations) around.”

Anhauser-Busch has outfitted its freight haulers, including Biagi, with compressed natural gas heavy trucks at Los Angeles and Chicago facilities, so those can be outfitted to fill up fuel cell trucks. And Biagi is also considering working out deals to refill these trucks at local government corporation yard fueling stations for natural gas buses.

Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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