Posted on 05/18/2022 5:21:18 PM PDT by blam
With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts.
Diesel pump prices averaged $5.61 a gallon nationwide, 51% higher than diesel prices across the country in January
Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.”
“These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves.
Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs.
Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public.
“One of the things we’ve been seeing in the U.S., particularly on the East Coast, is that diesel fuel inventories have been shrinking, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, still lots of trucks on the road and the supply is unable to keep up with demand,” Basu said. “The higher price of diesel fuel will become embedded in the cost of everything consumers purchase.”
Prices of fresh produce rising
Jordan DeWart, a managing director at RedWood Mexico, based in Laredo, Texas, said the types of consumer goods that could be immediately affected by higher diesel prices include fresh produce. Redwood Mexico is part of Chicago-based Redwood Logistics.
“With produce, that’s typically more in the spot rate business, and any of those smaller trucking companies are going to be heavily impacted by fuel costs,” DeWart said.
The U.S. imported more than $15 billion in fresh produce from Mexico in 2021, including avocados, tomatoes, grapes, bell peppers and strawberries, according to the U.S. Department of Agriculture.
“Everything coming northbound from Mexico through Laredo, the rates have been very sustained, but fuel prices keep going up, presumably with any differences being absorbed by the trucking companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially the smaller companies, they’re really feeling the pinch.”
It’s not only cross-border operators feeling the pinch. Growers and shippers in Texas’ Rio Grande Valley are also suffering because of increased fuel costs, said Dante Galeazzi, president of the Texas International Produce Association (TIPA).
“Our growers, shippers, importers, distributors … basically our entire supply chain has been and continues to be impacted by rising fuel costs,” Galeazzi told FreightWaves. “Between one-third to one-half of the costs for fresh produce is the logistics; you can see how quickly increases in that expense category can impact the base price.”
The Rio Grande Valley is the epicenter of the Lone Star State’s fresh produce industry, stretching across the southeastern tip of Texas along the U.S.-Mexico border. More than 35 types of fruits and vegetables are grown in the valley, which contributes more than $1 billion to the state economy annually.
“More concerning is that this wave of fuel increases is in line with the statistic that our industry is paying anywhere from 70% to 150% more year-over-year for OTR shipping,” Galeazzi said.
TIPA, which is based in Mission, Texas, represents growers, domestic shippers, import shippers, specialty shippers, distributors and material and service providers.
Right now, Rio Grande Valley growers and shippers are absorbing higher input costs instead of passing them on to consumers, but that could soon change, Galeazzi said.
“While the fresh fruit and vegetable industry continues to experience rising input costs across the board (seed, agrochemicals, labor, fuel, packaging, etc.), we have yet to experience sufficient upstream returns associated with those expense increases,” Galeazzi said. “Our industry is citing an 18% to 22% anecdotal increase to overhead costs. Meanwhile food inflation for fresh produce is hovering around 7%. That means the costs are slowly being felt by consumers, but it’s not yet at a commensurate level with input expenses.”
Diesel fuel prices at all time highs
The cost of diesel continues to soar across the country. Diesel pump prices averaged $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That’s 51% higher than diesel prices nationwide in January.
California averaged the highest fuel prices across the U.S., at $6 per gallon of gas and $6.56 per gallon for diesel, according to AAA. Diesel prices are also at an all-time high of $6.41 in New York.
The higher prices of diesel fuel and gasoline are being caused by a combination of factors, including surging demand and reduced refining capacity, along with the disruption to global markets caused by COVID-19, the current lockdown in China and the ongoing Russia-Ukraine conflict, said Rory Johnston, a managing director at Toronto-based research firm Price Street.
“The overarching oil market is feeling much tighter because of the Russian-Ukraine situation,” Johnston, also writer of the newsletter Commodity Context, told FreightWaves. “What we’ve seen is a larger immediate impact from the loss of Russian refined products; in addition to exporting millions and millions of barrels a day of crude oil, Russia also exported a lot of refined products, most notably middle distillates, like gasoline or diesel.”
Several refineries on the East Coast — including facilities in Newfoundland and Labrador, Canada — scaled back during the early days of the pandemic, which has hurt diesel capacity, Johnston said.
“There was also a refinery in Philadelphia that exploded just prior to the COVID-19 period starting,” Johnston said. “There’s not enough refining capacity on the global level, and particularly in the West right now and particularly in the northeastern U.S.”
He said he doesn’t foresee any relief from increasing diesel prices over the next few months or more.
“Things are going to be really tight for at least the next year, barring any kind of economic recession and some kind of demand slowdown materially,” Johnston said.
DeWart said trucking companies that don’t have a fuel surcharge component or contract in place and are depending on spot rates could be in big trouble over the next several months as diesel prices either keep rising or stay higher than average.
“Their fuel costs keep going up, but they’re really not able to negotiate higher rates right now with a really tight spot market,” DeWart said. “It’s really impacting small trucking companies, anyone that decided to kind of play the spot market, rather than being locked in contracted rates. They’re really feeling the pain right now.”
DeWart said for trucking companies, it’s critical to get some type of fuel reimbursement program in place “just to protect themselves in case the cost of fuel goes even higher.”
Isn’t it amazing it is only 2 years after Trump.
Think that.
And the child groper is just getting started. We haven’t yet become close to feel the true pain he wants to bring on we disobedient serfs. It was 2.50 a gallon pre child sniffer in NW Oregon, Now, 6.60 a gallon. NO ONE should believe, for one second, that this is not planned by this disgusting administration.
From a well known trucker on Twitter:
John Gilbertson
@trapperjohn37
·
May 12
As of now because of high fuel prices and shipping costs our grocery loads from Minnesota and Omaha going to WA and CA have been completely shut down until further notice. The shipper told us it’s no longer feasible to ship the products.
Would it be more efficient w.r.t. diesel to simply start doing double or triple trailers as a rule?
And Latin America
More profitable
I have read elsewhere that truckers are being forced to curtail some routes to make ends meet/breakeven. And that one of the more unprofitable routes is into Florida. There may bebdry spots all over the country where the big trucks won’t be able to go in order to stay in business. Don’t know if smaller operators can make up fr the difference.
I’m planning as best as can. I have oil heat. All fuels will be up. Considering propane tanks as backup, even if only to run a fireplace.
I am a huge fan of his and a couple other truckers on Twitter. They are our boots on the ground and I am paying attention to what they are saying.
Just tried to access his tweets..account is saying suspended! Again. Wtf..
Ignore my last. I was looking at older accounts..needed the one that ends with 27..
We will likely be living in a travel trailer next winter up in the mountains while our new house is being built. Maybe it will end up being a blessing.
I can predict a home heating crisis in the Northeast and other cold regions. Fuel is almost unaffordable at these levels, wait until they double, again. I'll put up lots of wood this Summer.
Did you see that going through nowhere, Nevada his driver’s side window went boom? Glass everywhere. Casper and he both okay.
Things are getting bad, and I wondered if it was deliberate. Take out the window, hijack truck, steal cargo.
“Would it be more efficient w.r.t. diesel to simply start doing double or triple trailers as a rule?”
I’m not a truck driver, but I would assume — all things being equal — that the heavier the load, the more fuel is consumed.
Heck no, I did not! Omg, I amnthankful he and Casper are okay. Really good guy and wonderful companion.
My first thought was, “I hope Casper is okay.”
Getting scary out there for our truckers.
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