Truck shipping

Rising diesel costs strain U.S. truckers and shipping operations

Diesel costs are reaching new heights in the United States, straining the operations of trucking companies and destroying the transportation budgets of companies that need to ship goods.

The price of fuel that powers heavy trucks has risen more than $1.50 a gallon in about two months, according to the US Energy Information Administration. The national average price climbed to $5.62 a gallon, setting a record for the second week in a row, as pump prices rose above $6 in some markets.

“These fuel costs are the biggest thing we’re facing right now,” said Jake Phipps, managing director of Phipps & Co., a West-based maker of interior finishes and building materials for property developers. Palm Beach, Florida.

He said the company’s shipping costs in the United States rose 15% to 20% from a year ago, prompting it to make changes to its distribution operations as some customers reconsidered their plans. due to rising costs.

“It forces us to take a closer look at where a project is and what it takes to ship there,” Phipps said. “We try to use rail as much as possible, which saves a little. But this is not always possible. Otherwise, all we can do is pass the cost on to our customers.

Rising energy prices, along with rising material costs and increased spending on labor, have helped push US inflation to its highest level in four decades.

Costs have hit consumers at the pump, with U.S. gasoline prices up about a third year-to-date to about $4.33 a gallon, according to the EIA. However, gasoline prices have moderated recently, while the price of diesel fuel, essential for industrial activities, has continued to rise. This has added to rising costs in supply chains and inflationary pressure on things ranging from housing construction to consumer goods deliveries.

The costs are hitting the small trucking fleets that make up the bulk of the highly fragmented U.S. trucking market particularly hard, worsening cash flow for companies that tend to be thinly capitalized with little cushion to absorb large swings in costs.

Airlines, gas stations and retailers use complex algorithms to adjust their prices based on cost, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

The national average diesel price has risen about $2 per gallon since the start of the year and pump prices have exceeded $6 per gallon in several regional markets, including New England and the eastern states. Central Atlantic. In California, where fuel has historically been more expensive than the rest of the country, the average price was just above $6.46 a gallon last week, according to the EIA’s metric.

“It’s growing faster than we can keep up with,” said Doug Smith, vice president of Ralph Smith Co., a family trucking company based in Bountiful, Utah. “It’s getting to the point where things are going to stall” as industrial customers reconsider their plans and consumers balk at higher prices for goods.

U.S. commercial vehicles, including large trucks, burn about 36.5 billion gallons of diesel annually, according to the American Trucking Associations, and motor carriers spent about $111.6 billion on diesel fuel in 2019, the last full year for which figures were available.

Trucking companies can usually cover rising diesel prices through fuel surcharges built into contracts. But the thousands of small fleets and independent owner-operators who make up the bulk of the highly fragmented truck market are finding it harder to pass on the extra expense. Rising operating costs are hitting these operators just as base shipping prices in spot trucking markets are falling due to faltering freight demand.

“It comes straight out of my profits,” said Rodney Morine, an independent trucker doing business as Opelousas, La.-based Morine Trucking & Construction, who runs his only truck between Louisiana and Georgia. “Customers are trying to bring everything back to pre-Covid rates, but fuel is much higher now,” Mr Morine said.

His fuel costs went up “easily 25% or 30%,” adding about $150 to the cost of a trip from Louisiana to Georgia, he said.

“But I have to get home, so if I go back and forth twice in a week, that’s an extra $600 a week for fuel, and that’s $2,400 a month,” Morine said. “It’s a monthly payment for a truck, so it’s like paying for a whole extra truck.”

Larger truckers who work more on long-term contracts that include fuel surcharges tend to be better protected from fluctuations.

Daniel Olivier, financial director at Yellow, partial load carrier Corp.

said on an earnings conference call this week that the carrier’s fuel surcharge revenue even outpaced diesel prices in the first quarter, with prices up about 50% and fuel surcharge revenue rising from 55% to 60% compared to the previous year.

Although rising operating costs are troubling, Mr. Smith of Ralph Smith Co. said the biggest concern for his company and its fleet of 30 trucks and 30 independent contract drivers is the impact of shipping costs. on the freight request.

“Some of them are reluctant,” Mr. Smith said. “They want to do the project, but at these costs, it’s out of budget.”

Learn more about the logistics report

Write to Paul Page at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8