Rising Diesel Costs are Straining U.S. Truckers, Shipping Operations
The cost of diesel is hitting new highs across the United States, straining trucking companies and undermining the transportation budgets of businesses that need to ship goods.
According to the U.S. Energy Information Administration, the price of fuel for heavy trucks has increased by more than $1.50 per gallon in about two months. The national average price rose to $5.62 a gallon, setting a record for the second week in a row, as prices at the pump surpassed $6 in some markets.
Jake Phipps, chief executive officer of Phipps & Co., an interior finishing and building materials manufacturer for property developers based in West Palm Beach, Fla. “These fuel costs are the biggest thing we are facing right now,” said.
He said the company’s shipping costs within the U.S. were up 15% to 20% year over year, forcing the company to change distribution as some customers reconsider projects due to rising costs. .
“It forced us to take a closer look at where a project is and what it takes to get there,” said Mr. Phipps. “We are trying to use the rail as much as possible, which will save a little bit. But that is not always possible. Otherwise, all we can do is pass the cost on to our customers.”
Rising energy prices, coupled with higher raw material costs and rising labor costs, have helped push inflation in the US to a four-decade high.
The cost has hit consumers, according to the EIA, with gasoline prices across the country rising about a third since the start of the year to about $4.33 a gallon. However, gasoline prices have recently adjusted, while the price of diesel fuel important to industrial business continues to rise. That has increased costs in supply chains and inflationary pressures on things from housing construction to distribution of consumer goods.
Costs are hitting smaller trucking fleets, making much of the highly fragmented U.S. trucking market particularly difficult, reducing cash flow for businesses with light-cap trends with little cushion to absorb large changes in costs.
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National average diesel prices have risen about $2 a gallon since the start of the year, and pump prices have surged past $6 a gallon in several markets in the region, including the states of New England and Central America. Atlantic. In California, where fuel costs were previously higher than in the rest of the country, prices averaged just over $6.46 a gallon last week, according to the EIA measure.
“It’s growing faster than we can keep up,” said Doug Smith, vice president at Ralph Smith Co., a family-owned trucking company based in Bountiful, Utah. “Things are about to stop” as industrial customers reconsider projects and consumers balk at higher commodity prices.
According to the American Transportation Association, American commercial vehicles, including large rigs, burn about 36.5 billion gallons of diesel annually, and motor carriers spend about 111.6 billion dollars for diesel fuel in 2019, the last year for which figures are available.
Transportation companies can often offset rising diesel prices through fuel surcharges built into the contract. However, the thousands of smaller fleets and independently operated owners that make up much of the highly fragmented truck market will have a harder time overcoming the added costs. Rising operating costs are affecting those operators as well as trucking’s underlying spot market prices are falling due to fluctuating freight demand.
“It comes directly from my bottom line,” says Rodney Morine, an independent truck driver operating under the name Morine Trucking & Construction, based in Opelousas, La.. “Customers are trying to get things back to pre-Covid prices, but fuel is a lot higher right now,” Mr. Morine said.
He says his fuel costs have gone up “easily 25% or 30%,” plus about $150 for a trip from Louisiana to Georgia.
“But I have to go back home, so if I do two round trips in a week, that’s an extra $600 a week on fuel, and that means $2,400 a month,” he said. Morin said. “It’s a monthly payment for the truck, so it’s like paying for an additional truck.”
Larger truckers who work more with long-term contracts that include fuel surcharges tend to be more insulated from fluctuations.
Daniel Olivier, CFO of Smaller Trucker Yellow Corp.
said in an earnings call this week that fuel surcharge revenue at the carrier even outpaced diesel prices in the first quarter, with prices up about 50 percent and fuel surcharge revenue up 55 percent. % to 60% from a year earlier.
While rising operating costs are making it difficult, Mr. Smith of the Ralph Smith Company said a bigger concern for his company and its fleet of 30 trucks and 30 independent contract drivers is the impact. of shipping costs for freight needs.
“Some of them are faltering,” Mr. Smith said. “They wanted to do the project, but with these costs, it went over budget.”
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