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.”
A friend of mine is a diesel mechanic. I was talking with him a few minutes ago when I ran into him while walking my dog, and he said his company is preparing for the impact. He is still a couple years away from retirement.
Bkmk
Things are crumbling by the day. Remember when diesel was a lot cheaper than gasoline. What happened? Thankful to live near Amish and local farms. Shuddering to think what heating the home will be this winter. I feel badly for the truckers, especially independents. Holding on but future is jot so bright right at the moment...
Wait until there are shortages.
Is diesel still being exported to Europe?
What did he say they would/could do?
I read yesterday that some stations in Washington state were out of gasoline. That must have been some localized event because I didn't hear a word about it today. If it were still a problem I would have expected we'd have heard about it.
Don't know.
“What did he say they would/could do?”
That’s what they are trying to work out. For one thing, there will be fewer diesel trucks on the road, and thus fewer diesel trucks that need maintenance. I assume they’ll be looking at some layoffs.
Fewer trucks means fewer deliveries, fewer deliveries means shortages.....what am I missing here. I'll pay more if I have to. Just keep bringing the supplies.
The conversation was about the impact to my friend’s business as a diesel mechanic. It wasn’t about the impact on the consumer about shortages at the grocery store that would result from fewer trucks making deliveries.
Not just hard times, deliberate war.
Okay, thanks.
US Express, one of the largest US trucking companies, just announced a 5% layoff of their management. More will follow.
Here’s the issue: Big trucks get maybe 6 miles per gallon. With $6 per gallon diesel, it costs a dollar per mile just for fuel. Add all the other costs in, the break even point for truckers is about $3 per mile to haul. Spot rates (what truckers get paid to haul) have been falling the past couple months and are about $2.50 per mile and continue to drop. Truckers are losing money every mile they drive.
Another Xiden disaster.
Concise, Gas along the east coast corridor is 5.60+.
In the South.
Just a matter of time.
“Shuddering to think what heating the home will be this winter.”
If Diesel is $10/gal, heating oil won’t be far from that.
There will be a mass refugee-style migration to the South, just to avoid freezing to death.
There is no where to go.
The homes are sold.
Funny not so much as you mention that.
Some guy on the next door app in 2020 said we should be following the advice of NYC.
He was in my hood in Concord, NC.
I told him to go home. His home is NYC.
Never heard back. Stupid libtards invading common sense land.
If the choice is freezing to death in your house or living in your car with your family in a warmer place I think the answer is clear.
I don’t know, but it seems to me that unable to afford heating oil would be a show-stopper in the Northeast.
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