When American long-haul trucker Deb LaBree sets out on the road to deliver pharmaceuticals, she has strategies to hold down costs. She avoids the West Coast and the Northeast, where diesel prices are highest. She organizes her delivery route to minimize “deadheading” – driving an empty truck in between deliveries.
And if a customer’s load is too far away or they can’t pay more for fuel? She turns the job down.
“It breaks my heart because I either have to say, `No, I can’t afford to,’ or ‘I can, but you’re going to have to pay some of my fuel to get me there,’ ” LaBree said. “I hate doing both of those things because it’s not the customer’s fault. It’s not our fault.”
The price of diesel fuel has skyrocketed in recent months – much more even than regular gasoline – especially after Russia invaded Ukraine in February. Moscow’s attack led numerous nations to spurn Russian fuel, removing from the market a major source of oil, the main component of diesel fuel, and driving prices drastically up.
The hidden costs of pricey diesel
For months, motorists have felt the pain of high gasoline prices. Many may not know that they’re also absorbing the impact of much costlier diesel fuel. That’s because the goods consumers buy – from cereal and orange juice to Amazon deliveries of diapers – are delivered by trucks, trains or ships that run on diesel. Those inflated prices are then passed on from company to company until they reach consumers in the form of costlier goods.
“People pay less attention to diesel prices because people aren’t going to the pump and using it,” said Matt Smith, lead oil analyst at Kpler, a research firm. “But diesel has a more far-reaching impact and is already having a real big impact across the economy.”
Diesel fuel is averaging US$5.50 a gallon is the U.S. – up a scorching 68 percent from a year ago, when it was selling for just $3.27. By comparison, a gallon of regular gasoline is averaging $4.47, up 41 percent from a year ago.
High gasoline prices have eased somewhat in recent weeks. But diesel has remained chronically high, with American refineries operating near capacity. Unless prices ease, the ripple effects of high diesel fuel could worsen because the costs are deterring some truck companies from accepting jobs unless they can persuade their customers to pay more for fuel.
“There will be more logistical shortages,” said Phil Verleger, a longtime energy economist. “Americans will find more empty shelves and higher prices.”
If they’re not rejecting jobs, many truckers are choosing lighter loads or working longer hours to make up for money lost on fuel, according to interviews with truckers and industry executives. Farmers harvesting hay and planting corn with diesel-fired tractors are absorbing a financial hit. Delivery companies are installing their own fueling pumps to cut costs. Ultimately, consumers are left bearing the burden.
“If you’re a farmer, then your energy costs are higher, and therefore it’s costing more to produce grain, and that’s pushing the price of grain up, and that’s pushing the price of food up,” said Smith, the analyst at Kpler.
Even more than gasoline, high diesel prices are magnifying the costs of goods because the delivery cost has risen so much. Consumer prices soared 9.1 percent in June compared with 12 months earlier, the government reported last week. The fuel oil portion of the consumer price index nearly doubled from the same time last year.
“Those energy costs are working their way into products, all manner of different consumer products,” Smith noted.
Slowing the flow
One reason why diesel prices haven’t yet declined as gasoline has is that OPEC nations have slowed their supply of oil, and Middle East oil typically produces more diesel fuel than, say, parts of Texas do. Another factor is that China has reduced its diesel exports, presumably to help achieve its net-zero greenhouse gas emissions goals.
And within the United States, refineries that produce diesel from crude oil are essentially maxed out. The nation has 11 fewer refineries operating today than before the pandemic, according to the American Petroleum Institute. One refinery that had served the East Coast closed after an explosion in 2019 and never re-opened. And some refineries in California are closed for retrofitting to process renewable fuel.
“We use a lot of diesel, probably more than what these refineries can produce,” said Bob Costello, chief economist of the American Trucking Associations.
President Joe Biden’s visit last week to Saudi Arabia was intended, in part, to encourage OPEC to produce more oil, which would mean more diesel fuel globally. Though no major deal was announced, Prince Mohammed bin Salman hinted that Saudi Arabia could potentially produce more oil.
But expecting OPEC to export more oil during high-demand summer months might be unrealistic, said Amy Myers Jaffe, an energy expert at Tufts University.
“The important thing,” she said, “is to make sure that our allies, together with OPEC, don’t decrease any flows to the market at any junction, especially if we have some kind of disruption.”
Even if American oil and gas producers increase production, tough challenges would remain – namely, finding additional refinery space and then enough pipeline capacity to transport any additional diesel.
Finding cheaper options
In the meantime, some truckers are struggling to adjust while keeping goods moving. Sherri Brumbaugh, who runs a fleet of 90 trucks as head of Garner Trucking, has installed more fuel pumps on-site in Findlay, Ohio, because she can obtain diesel more cheaply than her truckers can on the road.
She also monitors where her drivers are buying fuel to make sure they’re making wise decisions. And she tries to absorb the higher fuel costs herself as much as possible.
But “at some point,” she said, “you’ve got to go to the customer and say, `I’ve got to increase this rate.’ ”
Brumbaugh declined to say how much she’s raised rates on her customers, which range from bottled beverage companies to dishwasher manufacturers.
Lately, she said, there’s been less retail freight to haul. “It may be an indication of a recession,” she said. “I hope not.”
Cargo Transporters, which runs 470 trucks and 1,800 trailers, raised its rates, too, and has been turning down some jobs to Florida, where trucks often must return without a load, said Shawn Brown, a company executive. When there’s no cargo on a truck, no one pays the trucking company. But the driver still has to be paid, and fuel is still burned.
“When that trailer’s not loaded and there’s no revenue being generated and a mile is run, we’re eating that,” Brown said.
UPS and FedEx have more than doubled their fuel surcharges on ground deliveries year-over-year, according to calculations by Cowen Research and AFS Logistics.
Farmers also face higher costs. But they can’t easily raise prices, because they often don’t control the price of their goods. Milk and grain prices, for example, are set by the market.
“It’s costing us more for freight to get things delivered to the farm, and it’s costing more to haul things away,” said David Fisher, a dairy farmer in Madrid, New York, who is president of the New York Farm Bureau, which lobbies governments on behalf of farmers. “We’re planting crops and harvesting crops, and the cost of those are going to be higher, but we don’t know if we can recoup those costs.”
To burn less fuel, he’s considered skipping a tillage pass, a maneuver whereby a tractor manipulates soil to enhance crop growth. But doing so would risk having fewer crops to harvest.
A year ago, Fisher was spending $8,000 a week on fuel. This year, he said, the figure reached around $20,000.
“Everybody I talk to has quite a bit of anxiety over these fuel prices,” Fisher said.
Biden has called on Congress and states to suspend their gasoline or diesel taxes for a few months to help alleviate pain for drivers, but Congress appears unwilling to enact a tax holiday. Some states temporarily suspended some taxes on diesel and other motor fuels.
With high diesel prices persisting, LaBree and her husband are working more hours to manage costs. They used to stay on the road for four days and come home to Missouri for three. Now, she said, “we have to stay out for five – sometimes six – days to make up for what we’ve lost from fuel.”
“Most truckers like to think of ourselves as, we’re serving our country, moving goods around to keep America going,” LaBree said. “But at what point are we doing it for free? I can’t run a business that way.”