July 2008 | Commentary | Supply Chain Perspectives

Fuel for Thought

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The current fuel-cost crisis has U.S. truckers caught between a rock and a hard place. Any solution comes with a complex price tag, and has to reflect the common good. But who knows what the solution is?

In March 2008, Americans drove 11 billion miles fewer than they did in March 2007, the largest drop ever recorded by the Department of Transportation.

The reason? Do the math: You need Kleenex, and the store is 12 miles away. Your SUV gets 12 miles to the gallon. If gas costs $4 a gallon, then your $3 box of Kleenex now costs $11. Add depreciation, insurance, and car maintenance and that Kleenex now costs $15. That is a lot of money just to blow your nose.

What will happen to drivers and nose blowers when a barrel of oil costs $200? How much less will they drive then? This consumer scenario is nothing compared to the financial challenges independent truckers face.

Many truckers are sitting around looking at trucks they can't afford to drive, thanks to an Environmental Protection Agency ruling requiring them to burn more expensive ultra-low sulfur diesel fuel. While this fuel may be better for the environment, it is not better for truckers' pocketbooks.

The low-sulfur fuel costs about 8 cents more per gallon than regular diesel. The U.S. government charges an excise tax of about 24 cents per gallon. Tack on a state tax of approximately 20 cents per gallon.

The damage? An average 200-gallon tank fill-up now costs $104 extra per truck. And that doesn't take into account the rising cost of the fuel itself. Presumably, all this extra money goes to fix the roads that nobody can afford to drive on.

It is hard to argue against fuel taxes because we must maintain our roads. The tax revenue, however, does not come close to what we need to actually fix our long-neglected road system.

China subsidizes gas costs, including diesel, to the tune of about $2 a gallon. Because most motor freight carriers in China are independents, this subsidy is the only way its burgeoning economy can proceed.

Calculate the full cost of an international delivery that starts in China and ends in Tennessee, and it is clear that the United States taxes the delivery, and, in a remote way, China subsidizes it.

To add insult to injury, China does not impose the ultra-low sulfur fuel requirement. Given its current economy, you might say China is taking delight in as much high-sulfur fuel as possible (welcome to the Olympics).

Half the world currently enjoys fuel subsidies, at least for the moment. Some see these subsidies as a major reason for the great increase in crude prices globally (lower prices mean more driving).

The subsidies can cost from one percent to three percent of a nation's GDP. If this proves nothing else, it suggests that a solution to dramatically rising fuel prices is not merely a national issue, but a global one.

Global business, including transportation, is vulnerable to these seemingly endless cost escalations. The system may already have taken on more cost than it can bear.

The solution to fuel costs and availability is more political than economic. The law of supply and demand does not operate in a pure sense when some countries subsidize and others tax.

If the world economy does not operate by supply and demand, on what principle does it operate? Is the need to apply a real supply-and-demand process to energy costs an argument for intervention?

We can scoff at China and its pollution, but it does have an energy policy. We can look down on China's transportation policy, but its infrastructure is being rebuilt and ours is not. We desperately need real energy and transportation policies to solve the fuel crisis and rebuild our infrastructure.

We need leadership in Washington, not political philandering.

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