Diesel: The truck stops here

From haulers to loggers to landscapers, soaring fuel costs hit the bottom line but cutthroat competition keeps price hikes at bay.

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By Steve Hargreaves, CNNMoney.com staff writer

truck_highway_2.ce.03.jpg
Truckers, loggers, construction workers and others are struggling to pass on the higher cost of diesel.
Why diesel is so pricey
Cold winter
Diesel is made from the same stuff as heating oil, which has been in high demand.
Loved all over
Better, more efficient engines mean diesel cars have grown in popularity, especially overseas.
Tougher laws
Recent environmental regulations require cleaner diesel, which is more expensive to make.
Expensive oil
Crude's record highs - driven largely by investment money - has made diesel more attractive and sent its prices up.

NEW YORK (CNNMoney.com) -- The kid who delivers your pizza may be charging you an extra buck for gas, but for the guy that trucked the tomatoes, hauled the dough or milked the cows, passing along the fuel increase isn't as easy as pie.

From truckers and farmers to loggers, construction workers and fishermen, skyrocketing diesel prices are pushing what many consider the backbone of the American economy right up to the breaking point. Some independent truck drivers are even stopping work Tuesday, letting their rigs sit idle to protest the high prices.

"I'm in debt," says Jim Gossett, an owner/operator truck driver with a wife and daughter in Chapel Hill, N.C. "Do I turn in all my equipment, potentially lose my home?"

For the last nine years Gossett has driven a truck. For the last few he's been running a specialized carrier, delivering boats to marinas and dealers across the country.

He says his profit margin used to be around 25%. But with the near-tripling of diesel prices over the last few years, he now says that has been cut to 5%.

He says cutthroat competition in the industry means he's unable to pass along the increased cost.

Others who use huge amounts of diesel for a living say the same thing.

"You can't get any work if you raise your prices," said Tyson Clay, filling up the tank for his bulldozer at a gas station in Camden, Ala. "You just grin and bear it, people are only going to pay so much to get their land cleared."

Clay burns through 300 gallons of fuel a day. With the big runup in prices, he now spends $700 a day on off-road diesel, which is cheaper than regular diesel partially because the taxes are less.

Diesel soars

Due to strong demand diesel prices have nearly tripled since the start of 2004, analysts say, jumping 22% in the last two months alone. With a nationwide average price of $4.03 a gallon, on-road diesel is considerably higher than gasoline's $3.26 a gallon. This is unusual since diesel is normally cheaper than gas.

Unlike the average consumer who can cut back on gasoline use when prices get too high, businesses of all types have little recourse.

"Federal Express may not like high diesel prices but they have no choice but to pay the numbers or shut down," Tom Kloza, chief oil analyst at the Oil Price Information Service, wrote in a recent research note.

FedEx, or any other business, will be lucky if they are able to pass along the cost.

"Demand is weak," said Gus Faucher, director of macroeconomics at Moody's Economy.com. "If you're in construction, business is terrible right now. The last thing you want to do is raise your prices."

For consumers, it doesn't really matter if the fuel costs are passed on or not.

"The consumer impact is limited," said Faucher. "Transportation costs are a pretty small share of overall consumer prices."

In a bind

But for a logger like Tommy Lawler, it makes a huge difference.

Lawler has been logging land around Wilcox County, Ala., for more than three decades.

He has four logging crews out in the woods at any given time, each running three pieces of heavy equipment. Each piece of equipment burns through $150 of fuel a day.

Because contracts for logging are signed months, sometimes years in advance, he has little room to maneuver when the price of diesel spikes.

"If we stay here a month and fuel goes up 10%, I have no way to pass that along," he says over the noise of a logging operation in action. "Ultimately, it comes out of my bottom line."

His operations are already down to four workers - the minimum needed - so laying off workers isn't likely.

And with few other jobs in rural Alabama, Lawler doesn't have much to fall back on.

"We're limited in our options," he says. "It's not like you can go down the street and pick up a six-figure office job just because the cost of fuel is high."  To top of page

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