Jevic Transportation: The Latest Casualty in the Transportation Industry

On Monday, May 19^th, 2008 Jevic Transportation announced that they are closing their doors and shutting down all operations. According to David H. Gorman, President and CEO, "The current high fuel costs, economic downturn, increasing insurance costs, and tightening credit markets have made this decision necessary."¹ This is the latest casualty in the trucking industry. Since January 1^st, 2008 over 900 companies in the transportation industry have gone bankrupt or cases operations.

This New Jersey based company has been in business for the last 27 years, and it called it quits with little notification to the public. The company grew rapidly during the eighties and early 90's. At one time it had facilities in Delanco NJ; Chicago IL; New England, New York NY; Charlotte NC; Atlanta GA; Houston TX; Cleveland and Cincinnati OH; and Los Angeles CA. According to Transport Topics Online, Jevic was ranked 71 out of the top 100 U.S. and Canadian for-hire carriers.²

Last April, the company started to realign and reorganize itself to stay competitive in a dynamic and ever changing environment. Now, today, the 1,500 employees (driver, mechanics and office personnel) are out of a job and have to start searching immediately for new employment.

As I stated earlier in the quote from David H. Gorman, one of the main reasons for ceasing operations was the high cost of fuel. According to the Energy Information Administration, the US weekly average "on-highway" diesel price (all types), as of May 19^th, 2008 is $4.97. This is a $0.166 increase over last week and a $1.694 increase from a year ago. Of this $4.97, $0.244 is federal taxes and $0.22 is the average state tax applied to the diesel fuel.³

Another reason for the downturn for this established company was the tightening of credit. As part of the reorganization of the company, they cut about half of the work force (from 3,000 to a little of 1,500 employees). However, with low freight rates, poor fuel surcharges, and a weak economy they were unable to secure the necessary credit to continue operations. This however would have been a temporary solution at best, as fuel costs are not going to come back down anytime soon.

What are truckload and less than load carriers doing to prevent a similar fate? One Company, Schneider National, Inc is in the process of lowering the governor setting on the trucks driven by solo drivers. Instead of being set at a governor speed of 63 mph, they are being lowered to 60 mph. This, the company estimates will save an estimated $7 million to $15 million in fuel costs per year. Other companies are starting to charge the cost of the fuel used during excessive idling back to the driver.

Some other companies are starting a practice of terminating drivers who have an at-fault accident to help control insurance costs. This is another high expense area. Many companies are also tightening hiring requirements to ensure fewer risky drivers are hired.

Some companies are also taking this economic downturn to actually expand. Less than load operations can pay a high premium. Schneider National, Inc, according to The Lockridge Report of Sirius Radio channel 147 is adding approximately 600 trucks in the southwestern United States for just such an operation. While a risky proposition, it has the potential to pay high dividends, bringing in valuable revenue to combat the recession.

Lastly trucking companies are having to renegotiate contracts with shippers. Part of the rate paid to the trucking company is a fuel surcharge. It is based on an average fuel economy and the cost of fuel. Many of these contracts are not written in a way that allows for the current high prices of diesel.

1. www.jevic.com

2. http://www.ttnews.com/articles/basetemplate.aspx?storyid=19810

3. http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp