The Latest on Diesel Costs
Everyone’s pockets seem to be hurting from the jumps in fuel prices but none more so than those that rely on diesel. Carriers and owner-operators alike are struggling to cover the costs while navigating an ever-fluctuating freight market. These prices have carriers pinching pennies while smaller companies have no choice but to shut down operations. What’s the current outlook for the near future and how close are we to finding some relief?
What’s driving the costs of diesel?
Two words: demand and production. As demand for diesel remains high with ecommerce still expanding rapidly and shipping operations working at full capacity, the production is still less than where it was pre-pandemic.
Because diesel has a unique refining process, production can take longer and costs more to produce. While 49% of the costs of a single gallon of diesel is crude oil, 28% of the costs is from refining. The rest being a near split between distribution and taxes. Compared to regular gasoline, where crude oil makes up 60% of the costs and refining being at 17%. Regarding supply; pre-pandemic, the U.S. was importing over 10 million barrels weekly, whereas today we are sitting at nearly 8.4 million. During Covid though we were at 7.7 million.
“Diesel prices rose to $5.718 per gallon in June, up $2.432 per gallon, or 74%, compared to $3.286 per gallon in June 2021. The current high price of diesel is more than two times the price paid before 2020. Looking back to the end of February 2022, when Russia invaded Ukraine, the price of diesel jumped by $1.15 per gallon within the two weeks following. Before Russia’s actions, diesel prices were still rising, but were barely $4 per gallon and had sat around $3.60 per gallon as 2021 closed.”
We now have a supply issue (that is not necessarily new), and a production issue. The U.S. Government and POTUS have declared that all refineries need to be operating at full capacity to meet demand, including building new ones. Refineries though are heavily regulated and must meet strict requirements to operate safely so it takes time and money to get one going. By the time new refineries are built up, the demand for diesel could look different. Many are calling for waivers to policies such as the Jones Act so that imports can become more efficient, and the U.S. can start to meet its own supply needs.
Truckers are in dire straits.
“’We're all just trying to stay afloat and at times I have to stop and ask myself if it's worth it," Resek, who has been driving for seven years, said. "Trucking is not what it used to be and we seem powerless to do anything about it.’” – Insider.com
Those that are feeling the most pain are the smaller companies, especially those that are only a couple years into the industry. From cutting their fleet down to a one-man job or getting used to taking loads as a loss, the fuel cost have become unrealistic. This environment has made it impossible for start-up trucking companies and owner operators to survive, let alone make a profit and in doing so, worsening the driver shortage.
Ripple effects are far and wide, and close to home.
When the cost to ship goods increase (let’s say,… due to fuel costs), the price of the goods go up to match it. So, if you have noticed price spikes at the grocery store or any other items that you regularly purchase, inflation takes a toll, but there is a big chance that you are inadvertently paying those high fuel prices for the transport of those goods.
How’s the outlook?
Multiple solutions are being brought to the table to help curb the impact of these prices. From the White House:
“Specifically, he [POTUS] is calling on Congress to suspend the federal gas tax for three months, through September, without taking any money away from the Highway Trust Fund. And he is calling on states to take similar action to provide some direct relief, whether suspending their own gas taxes or helping consumers in other ways.”
Though this may bring costs of fuel down, it would not be enough to reverse or stop the hit the economy is taking from this.
Other measures have been introduced where states and their local authorities take action by offering relief payments and cutting other taxes down.
The one solution that would give long-term, stable relief is upping supply by continuing to increase imports as well. There are many details and actions that need to be taken to have this happen but for now, this has become a waiting game.
What can Meadow Lark do for you? See what our transportation solutions can offer when you call us today! (866) 736-5233