Shippers, Truckers Face Diesel Prices 22 Percent Above A Year Ago

May 16, 2018 by Clarissa Hawes, @cage_writer

Diesel prices have jumped 22 percent from a year ago and stand at their highest level in 41 months.

The average price of diesel reached $3.24 per gallon Monday, up from $2.54 a year ago, according to the latest U.S. Energy Information Administration fuel pricing report.

This is creating higher expenses for businesses that need to ship goods.

Diesel prices are expected to continue their climb and could hit $3.50 by the end of 2018, said Noël Perry, an industry analyst and principal with Transport Futures.

“The demand for diesel globally has been through the roof, partially because the economy has been going gangbusters all over the world,” Phil Flynn, a senior market analyst of Price Futures Group, told Trucks.com.

Diesel prices have risen for eight consecutive weeks, according to the EIA.

Shippers are picking up the tab. That’s because there is more freight that needs to be moved than available trucks. There are about 6.6 loads for every available truck trailer, according to DAT Solutions, which tracks freight and rates. A year ago, there were 3.5 loads per every van. The larger imbalance this year gives truckers and motor carriers the ability to negotiate higher fuel surcharges to cover rising expenses.

Motor carriers charged customers a fuel surcharge of 31 cents per mile last month, up from 24 cents a year earlier. Meanwhile the spot trucking rates for a standard trailer have risen 29 percent to $1.85 per mile from a year ago, DAT said.

“With the economy as strong as it is, trucking companies still have a lot of pricing power because shippers want to move their goods,” Flynn said.

“The only people that really don’t like higher fuel prices are shippers and consumers, who will have to pay more for a pair of jeans at the store,” he said.

Truckers are adapting to higher fuel costs by investing in more fuel-efficient trucks and aerodynamic trailers to increase their mileage.

While the national average fuel economy for semi-trucks is about 6.5 mpg, Henry Albert, an independent trucker from Statesville, N.C., said he gets 10 mpg because of his focus on fuel efficiency.

If that was the national average for trucking fuel efficiency the industry would save $24 billion and 9.7 billion gallons of diesel fuel annually, according to the North American Council for Freight Efficiency

Truckers are adapting relatively low-tech ideas such as covered wheels, trailer aerodynamics and low-rolling resistance tires to save fuel. The adoption of automated manual transmissions also is increasing fuel efficiency, according to NACFE.

“If you think diesel prices are too high, you have to figure out a way to use less of it,” Albert told Trucks.com. “Everything on my truck is set up to increase my fuel mileage, whether it’s the engine, trailer aerodynamics or my tires.”

There are varying views among industry and government analysts as to how much higher oil and fuel prices will rise.

U.S. West Texas Intermediate, or WTI, a sweet crude oil, surged to above $71 per barrel on Monday, putting prices at a three-year high.

Flynn said oil could hit $84 per barrel this year.

The EIA forecast pegs WTI crude at an average $66 per barrel this year, up from $51 in 2017. The price per barrel is expected to fall to $61 in 2019, the EIA said.

Higher prices are leading to increased U.S. crude oil production. Oil companies are expected to extract an average of 10.7 million barrels per day this year, up 12 percent from 9.4 million barrels produced daily in 2017, the EIA said.

Excess inventories of stored oil around the world are now at their lowest level in more than three years after the Organization of the Petroleum Exporting Countries, or OPEC, and Russia cut production back following a glut of oil that drove down prices.

Drillers in the U.S. are responding.

The number of rigs in the U.S. has jumped 15 percent in 2018, according to Baker Hughes data.

Texas, which has the majority of oil rigs in the U.S., has seen a 14 percent jump this year.

North Dakota has posted a 21 percent increase in its rig count in 2018. Business is slowly returning after the fracking industry was devastated there when prices dropped to around $30 in early 2016 after soaring to nearly $100 a barrel in 2014.

“We are certainly expecting to see higher prices than we have seen over the last several years,” Jonathan Cogan, spokesman for the EIA, told Trucks.com.

“We don’t see any immediate relief at the diesel pump in the near term,” he said.

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