**Before the**

**United States Senate**

**Energy and Natural Resources Committee**

**Statement of Barbara Windsor**

**on behalf of the**

**American Trucking Associations, Inc. (ATA)**

***Why Diesel Fuel Prices Have Been so High, and***

***What can be Done to Address the Situation***

**September 23, 2008**

Mr. Chairman and Members of the Committee:

My name is Barbara Windsor, and I am the President of Hahn
Transportation, a trucking company headquartered in New Market,
Maryland.  My family built and grew this business over the past 75 years
and today we operate more than 100 trucks and employ over 150
individuals.  As a trucking company, we are dependent on a plentiful
supply of diesel fuel.  In fact, our company purchases approximately
2,600 gallons of diesel fuel daily to ensure that our trucks are able to
deliver freight to our customers.  Last year, Hahn Transportation spent
approximately \$ 1.7 million on diesel fuel and this year we expect to
spend an additional \$950,000 more for that fuel.  This dramatic (55%)
year-over-year increase in the cost of diesel fuel is harmful to the
trucking industry and the U.S. economy. 

Today, I appear before you representing not just my company, but also
the American Trucking Associations (ATA).  I am proud to serve as an ATA
Vice Chairman and the former Chairman of its Political Action
Committee.  ATA is the national trade association of the trucking
industry.  Through its affiliated state trucking associations,
affiliated conferences and other organizations, ATA represents more than
37,000 trucking companies throughout the United States. 

The trucking industry is the backbone of this nation\'s economy
accounting for more than 80% of the nation's freight bill with nearly 9
million Americans working in trucking-related jobs. The trucking
industry delivers virtually all of the consumer goods in the United
States. We are an extremely competitive industry comprised largely of
small businesses. Roughly 96% of all interstate motor carriers operate
20 or fewer trucks.

Diesel fuel is the lifeblood of the trucking industry. Each year, the
trucking industry consumes over 39 billion gallons of diesel fuel. This
means that a one-cent increase in the average price of diesel costs the
trucking industry an additional \$391 million a year in fuel expenses.
The national average price of diesel fuel is currently over \$4.00 per
gallon, which is nearly \$1.06 more than just one year ago.

![](media/image1.wmf){width="4.377083333333333in"
height="3.2805555555555554in"}

The trucking industry is on pace to spend an incredible \$159.9 billion
on fuel this year. This is \$47 billion more than we spent in 2007, and
more than double the amount we spent just four years ago.

![](media/image2.wmf){width="4.252083333333333in"
height="3.1868055555555554in"}

Today it costs approximately \$1,200 to refuel a truck. As a result of
this dramatic increase in the price of diesel, which has coincided with
a downturn in the economy and a softening of the demand for freight
transportation services, many trucking companies are struggling to
survive. In the first half of 2008, more than 1,900 trucking companies
with at least five trucks failed. This was the largest number of
trucking related failures since 2001. It is very likely that a large
number of companies that operate fewer than 5 trucks also have turned in
their keys during the first half of this year.

![](media/image3.wmf){width="4.252083333333333in"
height="3.1868055555555554in"}

This hardship surprises few in the industry. For most truckers, fuel has
surpassed labor as their largest operating expense. Over the past five
years, total industry consumption of diesel fuel has gone up roughly 15
percent, while the price of diesel has nearly tripled during the same
time period.

Trucking is a highly competitive industry with very low profit margins.
This explains why many trucking companies are reporting that higher fuel
prices have greatly suppressed profits, if they are making a profit at
all. Our industry cannot simply absorb this rapid increase in fuel
costs. We must pass some of these costs through to our customers. So not
only do high fuel prices devastate truckers, but their customers as
well. Ultimately, the consumer is forced to pay higher prices for food,
clothing and other basic necessities.

A.  **Why has the Price of Diesel Increased?**

Diesel fuel is a commodity that is refined from petroleum. Like most
commodities in a competitive marketplace, its price is determined by
supply and demand. The following chart demonstrates the close
correlation between the price of petroleum and the prices of gasoline
and diesel fuel.

![](media/image4.wmf){width="4.252083333333333in"
height="3.1868055555555554in"}

With the exception of a brief period following Hurricanes Katrina and
Rita in 2005, the prices of gasoline and diesel have paralleled the
price of petroleum. The price spikes in refined products following the
hurricanes of 2005 help illustrate the problem our nation faces when
petroleum is available in the marketplace, but refining capacity is
inadequate.

The dramatic run-up in petroleum product prices, including gasoline and
diesel, is the result of a confluence of factors. First, there has been
an increase in global demand for petroleum primarily from the rapid
growth in China and India, but also from increased demand among Europe
and the Persian Gulf countries. Until recently, the United States demand
for petroleum and refined products has steadily increased. This year,
however, as a result of exorbitantly high fuel prices and a slowing
economy, the U.S. has experienced some demand destruction. The U.S.
Energy Information Administration estimates that U.S. petroleum
consumption fell 4.5% during the first half of 2008, compared with the
corresponding period in 2007.

Second, the story behind the global supply of petroleum amounts to a
wall of worry. The U.S. is the third largest oil producer in the world;
however, our production of domestically produced oil from Alaska is
declining and new sources of production have been placed off limits for
environmental reasons. A large majority of the world's oil supply is
controlled by foreign countries. Many of these countries have come
together to form the OPEC cartel, whose mission is to restrict petroleum
supplies and prop up prices. Other oil producing nations, such as
Nigeria, Venezuela and Russia, are politically unstable or simply do not
agree with U.S. policies and may intentionally withhold oil from the
market in an attempt to hurt U.S. interests. As a result, there is very
little excess petroleum in the market and any disruption -- potential or
real -- translates to an immediate price spike.

Added to this wall of worry is an increased risk premium on each barrel
of oil. This risk premium is based upon geopolitical instability and a
new found appreciation of the vulnerability of U.S. production and
refining capabilities to hurricanes in the Gulf of Mexico and southern
U.S.

Third, we have borne witness to a dramatic decline in the value of the
dollar. Five years ago, the dollar was at parity with the Euro. Today,
the dollar is worth nearly 30% less than the Euro.

![](media/image5.wmf){width="4.252083333333333in"
height="3.1868055555555554in"}

While the weak dollar has helped U.S. manufacturers export their goods,
it has hurt U.S. consumers who have seen significant erosion in their
purchasing power. Since oil is denominated in dollars, a large
percentage of the increased price of oil can be attributed to the
significant fall in the value of the dollar relative to other world
currencies.

Finally, we note that there has been a significant increase in the
amount of dollars invested in the petroleum futures market by
non-commercial participants and believe that this increased speculation
may be partially responsible for the increase in commodities prices.

It is clear that our energy crisis is a complex problem that requires a
comprehensive solution.

**B. A Comprehensive Solution is Required**

Against this backdrop, we greatly appreciate the opportunity to discuss
actions that Congress can take to help address the soaring price of
diesel fuel. The fuel crisis we face today is severe. There is no one
single solution to high oil prices and Congress must embrace a
multifaceted approach to solving this problem. We are not going to be
able to conserve our way out of this crisis.  Nor will increased
production provide a total solution.  We are going to need every tool in
the tool shed to address this crisis. Keeping with this metaphor, we
need a drill to expand the supply of petroleum, we need a saw to cut the
demand for petroleum, and we need the hammer of government to ensure
that petroleum markets are transparent and not subject to excessive
speculation or manipulation.

> **1. The Drill -- Recommendations to Increase Supply**

For the foreseeable future, the trucking industry will continue to
depend upon the diesel engine and an adequate supply of diesel fuel to
deliver America's freight. Presently, there is no technology that is
capable of replacing the efficiency of the diesel engine for heavy duty
trucks. As our population continues to grow and other nations continue
to industrialize, the global demand for diesel fuel will continue to
increase.

The International Energy Agency has stated that global supplies may not
keep up with demand through 2013 and that spare capacity from the
Organization of Petroleum Exporting Countries will shrink, resulting in
a "tight" market with little spare oil production capacity. The dramatic
increase in the price of oil is partially fed by the perception that
over the next few years there will be a shortage of oil as a result of
the failure to invest in increasing oil supplies. For these reasons, in
addition to reducing consumption and lessening the demand for petroleum,
we need to focus on increasing our supply of crude oil.

A. [Increase Domestic Exploration]{.underline}. ATA believes that
increasing our domestic supply of crude oil will help lower diesel fuel
prices. To achieve this goal we need to begin environmentally
responsible exploration for crude oil in the Arctic National Wildlife
Reserve and Outer Continental Shelf. We also must begin developing the
oil shale resources in Colorado, Utah and Wyoming and eliminating the
barriers to utilizing coal-to-liquid technologies to exploit our vast
domestic coal resources. The technology exists to ensure that these
resources are developed in a manner that protects the environment. We
also must consider the fact that drilling in Alaska or mining in
Colorado requires Clean Air Act permits, Clean Water Act permits and
land use development permits, all of which contain a host of
environmental protections.   Compare this to the drilling for oil in
Venezuela or off the coast of Cuba with virtually no environmental
protections. The debate over whether to drill in these areas of the
United States has been ongoing for decades. In light of geopolitical
instability, the growing demand for energy from Asia and Europe, and new
drilling techniques to ensure that environmentally-sensitive areas
remain protected, it is time to change these policies and develop these
critical domestic resources.

B. [Increase Domestic Refining Capacity]{.underline}. For years now it
has been apparent that the U.S. has underinvested in refining capacity.
Regardless of the reason for this underinvestment (*e.g.*, environmental
restrictions or economic factors), it is time to reverse this trend.

To help expand U.S. refining capacity, ATA has asked that EPA streamline
its permitting process to facilitate refinery expansions and new
refinery construction. Congress also should consider enacting incentives
to encourage increased domestic refinery capacity.

C. [One National Diesel Fuel Standard]{.underline}. While gasoline moves
people, diesel fuel moves our economy. Due to the uniquely interstate
nature of diesel fuel, Congress should take extraordinary steps to
ensure that no state enacts a boutique *diesel* fuel mandate. Today,
California and Texas require special boutique diesel fuel blends. These
unique blends cost more to produce and prevent diesel fuel from simply
being transported from one jurisdiction to another in times of shortage.
In addition, boutique fuels are typically produced by only a handful of
refineries, which results in less competition, higher refining margins,
and ultimately higher fuel prices.

While Congress took steps to curb the proliferation of boutique fuels as
part of the Energy Policy Act of 2005, the Act created a loophole for
states seeking to enact renewable fuel mandates. To date, five states
have enacted biodiesel mandates and several others are considering this
course of action. In light of the recently enacted biodiesel mandate as
part of the expanded federal renewable fuel standard (RFS), Congress
should preempt state biodiesel mandates. These duplicative state
mandates are not needed to ensure a strong domestic biodiesel industry
and will simply create an economic environment where biodiesel producers
can charge extraordinarily high prices for their product -- insulated
from the checks and balances of a competitive market. The federal RFS
guarantees that 1 billion gallons of biodiesel will be consumed
domestically -- the free market must be allowed to operate to ensure
that this mandate is achieved in the most cost effective manner
possible. State biodiesel mandates will distort the free market and
prevent biodiesel from being consumed in those parts of the country
where it is most economical to do so. Congress must preempt state
biodiesel mandates as inconsistent with our national interest and
efforts to promote the cost effective use of biofuels.

While on the subject of biodiesel, we would be remiss if we did not call
for renewed efforts to close the splash and dash loophole. The American
public would be outraged if they knew that their tax dollars were being
spent to subsidize biodiesel that is ultimately exported for sale
outside the U.S. Beginning next year the Congressionally-mandated
biodiesel standard will require U.S. companies to consume 500 million
gallons of biodiesel. This number jumps to a billion gallons in 2012.
For this reason, we do not believe that we should create an incentive to
export subsidized biodiesel, which will drive up the price of this
mandated alternative fuel for U.S. consumers.

> **2. The Saw \-- Recommendations to Reduce Demand**

Reducing the nation's consumption of diesel fuel will reduce the overall
demand for petroleum and should result in lower prices for petroleum
products.

A. [Control Speed]{.underline}. The typical heavy-duty diesel truck
travels between 5 and 7 miles on a gallon of diesel, depending upon
load, route, equipment and drivers' skill. Speed has a direct
correlation to fuel consumption. In fact, for each mile per hour that a
truck travels above its optimal fuel efficiency point, its fuel economy
decreases by 1/10 of a mile per gallon. For example, a truck traveling
at 65 mph that is capable of achieving 6 miles per gallon, will achieve
only 5 miles per gallon when traveling at 75 mph. For this reason, ATA
recommends that Congress establish a national speed limit of 65 mph for
all vehicles. Of course, to achieve the maximum benefit of this policy,
the federal government will need to partner with States to ensure strict
enforcement of the 65 mph speed limit.

ATA also has petitioned the Administration to require that all new
trucks be equipped with factory-installed devices that electronically
limit the truck's maximum speed to 68 mph. In addition to the fuel
conservation benefit from ensuring that trucks do not exceed this speed,
we are confident that this measure will further reduce the number of
truck-related fatalities that occur on our nation's roadways.

B. [Reduce Main Engine Idling]{.underline}. Truck drivers idle their
trucks out of necessity. The Department of Transportation's Federal
Motor Carrier Safety Administration (FMCSA) *Hours-of-Service*
regulations require mandatory off duty rest periods. Many over-the-road
drivers rest in the sleeper berth compartment in their truck cabs. As
the driver rests in the truck's sleeper compartment, he/she will often
need to cool or heat the cab to rest comfortably. In extremely cold
weather, truck drivers also will idle their engines to prevent the
engine block from freezing. Argonne National Laboratory estimates that
the average long-haul truck idles for 1,830 hours per year. With
hundreds of thousands of these trucks on the road, idling has a
significant impact on fuel consumption and the environment. The U.S.
Environmental Protection Agency (EPA) estimates that idling trucks
consume approximately 1.1 billion gallons of diesel fuel annually.

Several options are currently available to reduce engine idling.
Auxiliary power units (APUs) are among the most popular choices in
anti-idling equipment providing climate control (heating and cooling),
engine preheating, battery charging, and power for household accessories
without use of the truck's main engine. APUs have been proven by the
Federal Highway Administration to save up to one gallon of fuel per hour
of idling and to substantially reduce emissions and greenhouse gases.

More than 30 states, counties, or cities have adopted regulations
limiting the amount of time a commercial vehicle can idle. While
reducing main engine idling is a laudable goal, three major barriers
stand in the way of trucking companies purchasing such equipment for
their daily use: (1) the failure to grant exceptions for the additional
weight associated with anti-idling equipment, (2) the imposition of a
federal excise tax on the purchase of such devices, and (3) the actual
cost of the devices themselves.

Since idling reduction equipment will add weight to a truck, many fleets
cannot afford to reduce their cargo capacity to compensate for the
installation of idle reduction equipment on a truck. To address this
concern, Congress authorized a 400-pound weight exemption for trucks
equipped with idle reduction equipment under Section 756 of the *Energy
Policy Act of 2005*. While Congress\' intent was to mandate this
exemption, the Federal Highway Administration (FHWA) has determined that
states "may" adopt the exemption on a voluntary basis. FHWA's
interpretation of the weight exemption gives states the option of
whether to allow the exemption or not. To date, 32 states have passed
legislation recognizing the 400-pound weight tolerance and a handful of
states are exercising enforcement discretion.  ATA asks Congress to
clarify the 400-pound weight exemption as being applicable to idling
reduction equipment nationwide.

A recent IRS interpretation applies the Federal Excise Tax (FET) to the
purchase of idle reduction equipment, which has increased the cost of
this equipment and consequently reduced consumer demand for these proven
anti-idling solutions. The 12 percent tax acts as a disincentive to
truckers looking to reduce main engine idling. FET makes the acquisition
of APUs more expensive and beyond the reach of potential buyers. The tax
alone for a large fleet looking to buy 1,000 APUs at a typical retail
price of \$8,000 is almost \$1 million. Taxing devices that are proven
to reduce fuel consumption and diesel emissions clearly sends the wrong
message to the nation. By taxing APUs, we are doing a great disservice
to both our economy and the environment. To address these disincentives,
ATA asks Congress to amend Section 4051 of Internal Revenue Code to make
idling reduction equipment purchases exempt from FET. This action will
increase demand for the introduction of idling reduction equipment,
thereby ensuring greater fuel conservation and a cleaner environment.

While APUs are a proven alternative to main engine idling, most trucking
companies just cannot afford purchasing devices that can cost up to
\$10,000 per unit. ATA is seeking financial incentives from Congress in
the way of tax credits or grants to expedite the introduction of idling
reduction equipment across the Nation.

C. [Address Congestion and Highway Infrastructure]{.underline}.
Americans waste a tremendous amount of fuel sitting in traffic.
According to the most recent report on congestion from the Texas
Transportation Institute, in 2005, drivers in metropolitan areas wasted
4.2 billion hours sitting in traffic, consuming 2.9 billion gallons of
fuel annually. ATA estimates that if congestion in these areas was
eliminated, nearly 32 billion gallons of fuel would be saved and carbon
emissions would be reduced by 314 million tons over a 10-year period.
ATA recommends that Congress invest in a new congestion reduction
program to eliminate major traffic bottlenecks, with a specific focus on
bottlenecks that have the greatest impact on truck traffic.

D. [Fully Fund EPA's SmartWay^sm^ Program]{.underline}. In February
2004, the freight industry and EPA jointly unveiled the SmartWay^sm^
Transport Partnership, a collaborative voluntary program designed to
increase the energy efficiency and energy security of our country while
significantly reducing air pollution and greenhouse gases.  The program,
patterned after the highly-successful Energy Star program developed by
EPA and DOE, creates strong market-based incentives that challenge
companies shipping products and freight operations to improve their
environmental performance and improve their fuel efficiencies.  To
become a partner a fleet must commit to reduce fuel consumption through
the use of EPA-verified equipment, low-viscosity lubricants, or other
measures.  By 2012, the SmartWay^sm^ program aims to save between 3.3
and 6.6 billion gallons of diesel fuel per year.  EPA predicts
SmartWay^sm^ participants will also reduce their annual greenhouse gas
emissions by 48 million tons of CO~2~ equivalents.  SmartWay^sm^ is one
voluntary greenhouse gas program that not only works, but exceeds
expectations.

SmartWay^sm^ is a unique resource that reviews the use of new
technologies that are proven to reduce fuel consumption and then uses
market incentives to promote their deployment. The trucking industry has
fully embraced SmartWay^sm^ and relies upon the innovativeness of this
cutting edge program.  The entire nation benefits from SmartWay^sm^
through the fuel that is conserved and the emissions reductions it
produces. For this reason, Congress should increase the investment in
this program to facilitate its expansion. While the program is growing
by leaps and bounds, future funding remains uncertain.  ATA and other
freight and shipping sectors continue to work towards ensuring a
separate line item in future EPA appropriations for SmartWay^sm^, but we
are troubled by the FY08 funding cuts to the program.  More
specifically, total monies allocated to the program this year dropped
from roughly \$3 million in FY07 to \$2 million in FY08.  Funding cuts
to grants, contracting, marketing, technology development, and other
program expenses have severely undermined the mission of the program.
  It is our hope that EPA will redirect an additional \$1 million from
the Climate Protection Program under the FY08 budget to ensure the
continued growth and success of this remarkable program.  Given that the
Energy Star program's annual operating budget is \$50 million, we also
ask that Congress provide a line item appropriation to ensure that
SmartWay^sm^ is adequately funded in the future.

E. [Enhance Truck Productivity]{.underline}. By reducing the number of
trucks needed to move the nation\'s freight, the trucking industry can
reduce fuel consumption, which would produce significant environmental
benefits. More productive equipment - where it is consistent with
highway and bridge design and maintenance of safety standards - is an
additional tool that should be available to states. A recent study by
the American Transportation Research Institute found that use of these
vehicles could reduce fuel usage by up to 39%, with similar reductions
in criteria and greenhouse gas emissions. The reduction in truck vehicle
miles traveled on highways such as the New York Thruway, Massachusetts
Turnpike, Florida Turnpike, and on roads throughout the Western United
States, has lowered the amount of fuel burned in these states. These
examples of responsible governance could be replicated by other states
if given the necessary flexibility under federal law.

F. [Support Truck Fuel Economy Standards]{.underline}. Congress should
ensure that fuel economy standards for commercial medium- and heavy-duty
trucks are technologically and economically feasible, do not compromise
truck performance, and provide manufacturers sufficient stability and
lead time for production. Given that fuel economy in the industry has
remained flat over the last quarter century and fuel now is the largest
operating expense for many fleets, it is more critical than ever to
increase fuel economy for these vehicles. ATA will be working closely
with the U.S. Department of Transportation and the National Academy of
Sciences as they evaluate fuel economy, fuel efficiency, and establish
associated standards for medium- and heavy-duty trucks as directed under
the Energy Information and Security Act of 2007.

G. [Support Research and Development of New Technologies]{.underline}.
As we look toward the future, the trucking industry will be pressured to
reduce its carbon output. The industry will find it difficult to do this
without new affordable technologies. To address this issue, Congress
should fund research and development in the areas of new engine
technologies, aerodynamics, low-carbon fuels, fuel additives, lubricity,
tires, batteries, hybrids, anti-idling equipment, insulation, and
rolling resistance specific to operations of line-haul trucks.
Technology advancements have stalled for many years and an infusion of
funding into an organized research program will be critical to
developing the next generation of more efficient and lower
carbon-emitting trucks.

> **3. The Hammer -- Recommendations to Ensure Market Transparency and
> Prevent Excessive Speculation and Manipulation.**

During the past five years the assets allocated to commodity index
trading strategies have risen from \$13 billion to \$260 billion. The
huge increase in dollars invested in the petroleum futures markets and
the prevalence of exempt transactions and/or electronic exchanges that
are not regulated by the Commodity Futures Trading Commission (CFTC) has
led many experts to conclude that the current price of petroleum is
artificially inflated and has departed from the fundamental market
forces of supply and demand. While we cannot quantify the extent to
which speculation is responsible for the recent dramatic increase in the
price of crude oil, we believe that excessive speculation is part of the
problem. For this reason, we believe that Congress should take steps to
increase the transparency of the petroleum exchanges and establish
reasonable position limits for non-commercial traders to prevent
excessive speculation. At a minimum, Congress should require the CFTC to
regulate the petroleum markets to the same extent that it regulates
other commodity trading activities. Reasonable position limits should be
imposed that ensure the ability of consumers of the underlying commodity
to effectively hedge market risk while limiting excessive speculation
from investors that have begun using the futures markets for asset
accumulation.

Balancing the need for an efficient petroleum market with the desire to
limit petroleum speculation could help burst any speculative bubble that
has formed in the petroleum markets. Congress should consider the merits
of expanding government oversight of electronic petroleum exchanges and
establishing position limits to make it less attractive for Wall Street
to speculate on petroleum prices, while ensuring that a robust market
exists for legitimate purposes.  Most importantly, we note that the
recommendations to increase oversight and establish reasonable position
limits for non-commercial traders are remedies that have no potential
downside. Under a worst case scenario, the transparency of the market is
improved, but the price of oil remains unaffected. Under a best case
scenario, these remedies burst the speculative bubble that continues to
grow, restores investor confidence in the futures markets, and drives
asset accumulators out of the futures markets resulting in a relatively
quick reduction in the price the oil.

\* \* \* \* \*

ATA appreciates this opportunity to offer our insight into measures that
the country should take to help address high diesel fuel prices.