Skyrocketing Diesel Prices Squeeze Truckers, Farmers and Consumers
NEW YORK — When long-haul trucker Deb LaBree sets out to deliver pharmaceuticals, she has strategies to cut costs. It avoids the west coast and the northeast, where diesel prices are the highest. It organizes its delivery route in such a way as to minimize “deadheads”, that is, driving an empty truck between deliveries.
What if a customer’s load is too far away or they can’t pay more for fuel? She refuses the job.
“It breaks my heart because I either have to say, ‘No, I can’t afford it,’ or ‘I can, but you’re going to have to pay for some of my fuel to get me there,'” LaBree said. . . “I hate doing those two things because it’s not the customer’s fault. It’s not our fault.
The price of diesel fuel has skyrocketed in recent months – far more even than that of regular gasoline – especially after Russia invaded Ukraine in February. Moscow’s attack led many countries to reject Russian fuel, taking a major source of oil, the main component of diesel fuel, off the market and driving up prices drastically.
For months motorists have felt the pain of high gas prices. Many may not be aware that they also absorb the impact of much more expensive diesel fuel. That’s because the goods consumers buy — from cereal and orange juice to Amazon diaper deliveries — are delivered by trucks, trains or ships that run on diesel. These inflated prices are then passed on from company to company until they reach consumers in the form of more expensive goods.
“People are paying less attention to diesel prices because they’re not going to the pump and using it,” said Matt Smith, principal oil analyst at research firm Kpler. “But diesel has a bigger impact and already has a very big impact on the economy.”
Diesel fuel costs an average of $5.50 a gallon nationally, a torrid 68% jump from a year ago when it was selling for just $3.27. By comparison, a gallon of regular gasoline costs an average of $4.47, up 41% from a year ago.
High gasoline prices have eased somewhat in recent weeks. But diesel remained chronically high, with U.S. refineries running near capacity. Unless prices ease, the ripple effects of high diesel fuel could worsen as costs deter some trucking companies from taking jobs unless they can persuade their customers to pay more for fuel.
“There will be more logistical shortages,” said longtime energy economist Phil Verleger. “Americans will find more empty shelves and higher prices.”
If they don’t turn down jobs, many truckers choose lighter loads or work longer hours to make up for lost fuel money, according to interviews with truckers and industry executives. Farmers who harvest hay and plant corn with diesel-powered tractors take a financial hit. Delivery companies install their own refueling pumps to reduce costs. Ultimately, consumers bear the burden.
“If you’re a farmer, your energy costs are higher, and so it costs more to produce grain, and that drives up the price of grain, and that drives up the price of food,” said Smith, an analyst at Kpler. .
Even more than gasoline, high diesel prices amplify the cost of goods because the cost of delivery has increased so much. Consumer prices rose 9.1% in June from 12 months earlier, the government said. The share of heating oil in the consumer price index almost doubled compared to the same period last year.
“These energy costs ripple through products, all kinds of different consumer products,” Smith noted.
One of the reasons why diesel prices have not yet fallen like gasoline is that OPEC countries have slowed their oil supply, and Middle Eastern oil generally produces more diesel fuel than , say, parts of Texas. Another factor is that China has reduced its diesel exports, likely to help meet its net-zero greenhouse gas emissions targets.
And in the United States, refineries that produce diesel from crude oil are nearly depleted. According to the American Petroleum Institute, the country has 11 fewer refineries in operation today than before the pandemic. A refinery that served the East Coast closed after an explosion in 2019 and never reopened. And some California refineries are shutting down for upgrades to process renewable fuel.
“We use a lot of diesel, probably more than these refineries can produce,” said Bob Costello, chief economist for the American Trucking Associations.
President Joe Biden’s recent visit to Saudi Arabia was, in part, to encourage OPEC to produce more oil,
which would mean more diesel fuel in the world. Although no major deal has been announced, Prince Mohammed bin Salman hinted that Saudi Arabia could potentially produce more oil.
But expecting OPEC to export more oil during the 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, as well as OPEC, don’t diminish any flow to the market at any crossroads, especially if we have some kind of disruption.”
Even if U.S. oil and gas producers increased production, daunting challenges would remain, namely finding additional refining space and then enough pipeline capacity to transport any additional diesel.
In the meantime, some truckers are struggling to adapt while still transporting goods. Sherri Brumbaugh, who runs a fleet of 90 trucks at the head of Garner Trucking, has installed more fuel pumps on site in Findlay, Ohio, because she can get diesel cheaper than her truckers can on the road.
It also monitors where its drivers buy fuel to ensure they are making informed decisions. And she tries to absorb the higher fuel costs herself as much as possible.
But “at some point,” she said, “you have to go up to the customer and say, ‘I have to raise this rate.’ ”
Brumbaugh declined to say how much it has raised prices for its customers, which range from bottled beverage companies to dishwasher manufacturers.
Lately, she says, there has been less retail freight to move. “It may be a sign of a recession,” she said. “I hope not.”
Cargo Transporters, which operates 470 trucks and 1,800 trailers, also raised rates and turned down some jobs in Florida, where trucks often have to return empty, said Shawn Brown, an executive with the company. When there is no cargo in a truck, nobody pays the trucking company. But the driver still has to be paid and the fuel is still burned.
“When that trailer isn’t loaded and there’s no revenue generated and a mile is driven, we eat 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 cannot easily raise prices, as they often do not control the price of their goods. The prices of milk and cereals, for example, are set by the market.
“It costs us more in freight to get things delivered to the farm, and it costs more to transport things,” 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 plant and harvest crops, and the cost of those are going to be higher, but we don’t know if we can recoup those costs.”
To use less fuel, he plans to skip a tillage pass, a maneuver in which a tractor manipulates soil to improve crop growth. But that 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 about $20,000.
“Everybody I talk to is pretty anxious about 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 ease the pain of drivers, but Congress appears unwilling to enact a tax holiday. Some states have temporarily suspended certain taxes on diesel and other fuels.
With continued high diesel prices, LaBree and her husband are working more hours to manage costs. They stayed four days on the road and returned three days to Missouri. Now, she says, “we have to stay for five – sometimes six – days to catch up on what we have lost in fuel”.
“Most truckers like to think we’re serving our country, hauling goods to move America forward,” LaBree said. “But when do we do it for free? I can’t run a business that way.