Fuel prices, court ruling put truckers in squeeze.

California truckers, ready to combust over rising diesel fuel prices, now have the added uncertainty of last week's Supreme Court decision allowing Mexican drivers to bring freight across U.S. borders.

While the impact of the court decision will take a while to play out, it's not likely to be good for truckers. And it comes at a time when they're already losing ground in a three-way battle to determine who will absorb diesel's high cost: truckers, retailers or steamship lines.

Already, independent owner-operators serving the ports of Los Angeles and Long Beach have staged periodic strikes over the refusal of retailers and steamship lines to adequately reimburse them for additional fuel costs. So far, trucking companies and their independent drivers have had only limited success pressuring steamship lines to pony up.

And in an industry that's already operating on razor-thin profit margins, truckers can't afford to raise rates with a take-it-or-leave-it ultimatum. Steamship lines and other customers, skilled in pitting independent truckers against each other, will simply offer the business to someone else.

Looming in the shadows are lower-cost Mexican companies, who will soon be offering lower rates.

"Everybody that does business like I do in Southern California is fearful of this," said Armando Freire, owner of DIMEX Freight Systems Inc. in Otay Mesa, near the Mexican border. "We are all going to lose business. Even if (Mexicans) cut 20 percent off, they can still make a nice chunk of change and beat the heck out of me."

Sea trade

A big portion of the region's" trucking business is centered at the ports of Los Angeles and Long Beach, where retailers hire steamship lines to import goods from Asia and other overseas locations. Truckers haul much of the merchandise to rail yards east of downtown L.A. or to distribution centers in and around the Inland Empire.

As diesel prices increase--between $2.20 and $2.50 per gallon recently for the cleaner diesel fuel that's required in California--each participant in the delivery chain wants to pass the cost onto someone else.

Some of it gets passed onto consumers, but not all. Retailers place pressure on their suppliers to keep costs down and as the size of large importers such as Wal-Mart Stores Inc. and Target Corp. has increased, so has their pricing power. And while long-distance trucking companies have been able to levy fuel surcharges, there's now the threat of their rates being undercut by Mexican companies.

Truckers claim they could be facing a dilemma similar to when the industry was deregulated in the late 1980s and many companies went out of business.

Retailers said the increased competition might bring rates down slightly, but nowhere near as much as truckers believe because the bulk of imports come from Asia, not Mexico. Under the high court's ruling, Mexican truckers will only be able to handle loads going across the border in either direction, a $236 billion trade last year.

Many Mexican companies have already applied for permits from the U.S. Department of Transportation, which is awaiting the final go-ahead from President Bush. Processing the first ones will take two to three months.

"If the rules are respected--that is, the ruling concerning loads from and to Mexico--then the impact will be small," said Steven Cohen, co-director of the Berkeley Roundtable on the International Economy. But, Cohen adds, "it puts a lot of much cheaper Mexican drivers on U.S. roads in competition with American truck drivers (and) will have an adverse effect on American truck drivers."

Truckers say it's only natural that drivers hauling freight from Mexico to a U.S. city will look for additional cargo to transport on the way back, even if it doesn't make it all the way into Mexico.

"They are not allowed to but I would imagine that some are going to risk it," said Freire. "If I'm in the business, I won't go to Seattle and come back empty. That's ridiculous. It will double your cost."

Since deregulation in the 1980s, California's trucking industry has been operating on thin profit margins--generally 3 percent to 5 percent. Those who haul goods within the state believe they are most vulnerable to the Mexican influx.

That's because they charge an average of $1.25 per mile, while Mexican drivers charge only 35-50 cents. That will give them the ability to drastically undercut California companies, according to the California Trucking Association.

What's more, Mexicans who tank up across the border will pay only $1.60 to $1.70 for the dirtier fuel (about one-quarter to one-third less than their U.S. counterparts).

Response to ruling

With the Supreme Court ruling, the trucking industry has shifted some of its attention away from the gas reimbursements, and is trying to get legislation introduced that will force Mexican truckers to pay the same 18-cent excise tax per gallon of diesel fuel that U.S. drivers pay.

"(The Supreme Court ruling) makes our problems with fuel look minor," said Stephanie Williams, the CTA's executive vice president. "We've added a new state to the union as far as trucking goes. This makes us an endangered species."

Last month, drivers staged a series of "wildcat" strikes and rallies at some West Coast ports. On June 7, independent truckers who were not getting what they felt was their share of surcharge money walked off the job.

Even the larger port trucking companies don't appear to have any more muscle than the mom-and-pop operations. If they did, they would not have been operating at level pay rates over the last decade.

"The trucking company is not the slumlord here," said a port trucking company executive who spoke under the condition of anonymity. "When the customer won't pay us, the trucking company doesn't have it to pass on to the truck driver. They are passing on what they can get."

In the last six weeks, importers have reluctantly upped the surcharges to as much as 10 percent of the freight rate for port drivers and 8 percent or 9 percent for long-haul operations.

Whether truckers get higher surcharges remains to be seen, said Tom Teofilo, vice president of the Pacific Merchant Shipping Association of Southern California, which represents steamship lines.

"Every shipping line is doing something on its own," he said. "I can't speak for the group as a whole."