KATRINA UPDATE: Fuel costs high, but could slacken

Major price spikes in both gasoline and diesel fuel from coast to coast could be easing in the coming weeks as efforts to cut fuel taxes combined with the recovery of oil refinery capacity in the Gulf Coast region gain momentum. But that hasn't stopped some major trucking operations from moving forward with more aggressive measures to keep pace with fuel prices.

Transportation providers are scrambling to adjust fuel surcharge rates as well to stay ahead of surging fuel costs. Atlanta-based United Parcel Service (UPS), for example, plans to raise its cap to 12.5% from 9.5% on the fuel surcharge applied to UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select and U.S. international air services beginning Oct. 3. Airline fuel prices have surged 80% since it put the previous 9.5% cap in place back in January, said Kurt Kuehn, UPS senior VP-worldwide sales and marketing.

A fuel surcharge on UPS Ground services is unaffected and continues to fluctuate monthly based on the U.S. Energy Department's On-Highway Diesel price. The surcharge for September stands at 3%, he added. Experts caution that prices are going to stay in record territory for some time, so more fuel conservation efforts will be needed on the part of motorists and truck drivers alike.

"AAA is deeply concerned by the huge price increases at the nation's gas pumps we have witnessed this week. Even more disturbing, however, are the scattered reports of fuel shortages at individual gas stations caused by tight inventories, and by the panic buying of gasoline by some motorists," said the group's president, Robert Darbelnet. "For this reason, AAA is urging fuel conservation as an immediate priority for all Americans and the most effective way individuals can protect themselves from high prices and the possibility of a local fuel outage."

"We're advising motorists not to top-off their tanks," Spokeswoman Carol Thorp of the Automobile Club of Southern California added. "With the price of gasoline rising, motorists can conserve gas by keeping their vehicle's maintenance up to date, consolidate trips, car pool, use mass transit and, for short trips, try bicycling or walking."

States are considering cuts to their fuel taxes in order to give motorists and truckers some relief at the pump. On average, state and federal taxes currently represent 21% of the cost of a gallon of diesel and 19% of a gallon of gasoline. Connecticut Gov. M. Jodi Rell is considering a fuel tax rollback, while Pennsylvania Governor Edward Rendell is considering a short-term fuel tax rebate.

Yet the cost of such a rollback would be steep. Rendell said a 30-cent cut in the gas tax for three months would equal a one-time cost to the Pennsylvania Dept. of Transportation of $495 million, while a motorist who uses 650 gallons per year would see only $50 as the result of such a tax rebate.

In the end, fuel tax cuts may not be needed. The Dept. of Transportation reported that the nation is expected to have 95% of its refining capacity back online by Sept. 9 and it continues to work to restore the flow of gasoline, diesel and jet fuel throughout the country. Overall, DOT said it has arranged for oil trucks to load fuel directly from oil pipelines in Collins, MS, for delivery to emergency and relief personnel along the Gulf Coast.

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