Diesel trucks parked Wednesday at the AB Trucking lot in Oakland. Soaring diesel prices are forcing some trucking companies to pass costs on to their customers, while others are refusing jobs.
Posted on 08/11/2005 4:37:58 PM PDT by SmithL
State diesel prices have soared in the last two weeks, swelling the costs -- and in many cases, fees -- of the industries that depend on it.
If the high costs persist, they could boost the price of any product that is shipped -- in other words, almost everything.
Trucking companies have been forced to push up prices already, and some independent truckers have simply parked their rigs. Farmers, meanwhile, are bracing for shrinking profits as they rev up diesel guzzling tractors for the fall season.
"If it's sustained it will be passed in a gradual way to customers," said Pablo Spiller, Jeffrey A. Jacobs distinguished professor of business and technology at UC Berkeley's Haas School of Business. "When you buy from Amazon or a Dell computer or something else, you're shipment costs are going to increase."
The average price of a gallon of diesel reached $2.94 in California on Monday, up 29 cents from the week prior and 83 cents over a year ago, according to the Energy Information Administration.
Rates have continued to climb this week. In Oakland and surrounding areas, the average stood at $3.05 on Wednesday, up 3 cents from the day before, according to the AAA Daily Fuel Gauge Report.
There are three major factors at work, according to Rob Schlichting, spokesman for the California Energy Commission. The biggest is crude oil prices, which have climbed 63 cents per gallon since the beginning of the year and have been trading at or near record highs in recent weeks.
In addition, a fire late last month at San Ramon-based Chevron Corp.'s El Segundo refinery shut down that operation, which was largely responsible for slicing state diesel production by 12.5 percent the last week of July.
Finally, these events have coincided with an increase in diesel demand, arising from the fall planting and picking of agricultural crops.
Dwelley Farms in Brentwood, which primarily grows sweet potatoes and green beans, has just begun ground work preparation for next year, the diesel-intensive tilling and ripping of soil.
"Fuel costs have gone up, so it reduces the bottom line," owner Mark Dwelley said. "It makes it more expensive, pure and simple."
Because agriculture is so competitive, he said that raising prices isn't an option. He'll simply accept lower profits.
Oakland-based AB Trucking, on the other hand, is scrambling to get letters to customers informing them that shipping fees are increasing.
"The attitude of the trucking community is take it or leave it, because otherwise we won't have the truckers to serve you," company President Bill Aboudi said.
Indeed, he said that several of the independent truckers who haul for him have refused to drive for now because their profits are disappearing down their tanks.
AB Trucking is now paying around $4 per gallon of diesel, because it relies on a fueling company that pumps directly into the company-owned trucks on its yard. That's about an 11 percent increase in the business' second-biggest expense -- a hard cost to swallow in an industry that makes a slim profit of 5 cents on every dollar of sales.
The good news is that California diesel spot prices fell 7 cents on Tuesday and production rose 2 percent last week, suggesting the slack in state supplies is increasing. In addition, Chevron has said that the El Segundo refinery should be running again next week.
Both factors could help nudge prices down. But gas prices never come down as quickly as they rise and the primary factor in the increase, the cost of crude oil, remains in record territory.
"It spiked almost 40 cents, do you think it will go down 40 cents?" Aboudi posed. "I don't think so, bud."
Energy related costs once they do hit the breaking point can cause a dynamic downward shift (without a doubt the WH must be concerned about this prospect).
High fuel prices along with Greenspans ridiculous rate hikes isn't exactly a nice picture -
Though the economy is doing very well currently - (but remember Greensapn rate hikes have been a common denominator of the past two recessions 1990 -91 and 2000-2001)
My company has 250 trucks burning about 10,000 to 12,000 gallons of diesel every day. At nearly $3 it really adds up quick. We add a fuel surcharge to all our rates. Customers pay it or we don't haul it. Between rate increases and fuel surcharges, our customers are paying about 25% more than just a few years ago. We primarily haul hazardous materials.
This graph sure isn't pretty.
| WHAT WE PAY FOR IN A GALLON OF DIESEL FUEL | |||||
|---|---|---|---|---|---|
| Mo/Year | Retail Price (Cents per gallon) |
Refining (percentage) |
Distribution & Marketing (percentage) |
Taxes (percentage) |
Crude Oil (percentage) |
|
|
|||||
| May-02 | 130.5 | 5.1 | 11.3 | 36.9 | 46.6 |
| Jun-02 | 128.6 | 6.6 | 11.2 | 37.5 | 44.7 |
| ... | ... | ... | ... | ... | ... |
| May-05 | 219.9 | 19.7 | 9.4 | 22.8 | 48.1 |
| Jun-05 | 229.0 | 21.9 | 5.2 | 21.9 | 51.0 |
This table requires a little bit of time to interpret correctly because it plays with the percentage of total cost. I've recalculated the table to be a little more intuitive:
| Mo/Year | Retail Price (Cents per gallon) |
Refining (Cents per gallon) |
Distribution & Marketing (Cents per gallon) |
Taxes (Cents per gallon) |
Crude Oil (Cents per gallon) |
|---|---|---|---|---|---|
|
|
|||||
| May-02 | 130.5 | 6.7 | 14.7 | 48.2 | 60.8 |
| Jun-02 | 128.6 | 8.5 | 14.4 | 48.2 | 57.5 |
| ... | ... | ... | ... | ... | ... |
| May-05 | 219.9 | 43.3 | 20.7 | 50.1 | 105.8 |
| Jun-05 | 229.0 | 50.2 | 11.9 | 50.2 | 116.8 |
We can see that the refining costs and the cost of crude oil have skyrocketed, while other costs have remained constant. From 2002, about $0.40 is due to refining issues and $0.50 is due to the cost of crude oil.
they are smarter than the airlines..you need to raise prices to cover costs. The airlines keep thinking they can beat it with volume, but don't. The first morning that there are no seats available out of Ohare..the ticket costs will go up. They just don't have the sense to cut back.
The airlines don't really have a choice though. They have huge overhead costs that they have to pay. The airlines have to worry about the pay and benefits for their workers, large insurance costs, maintenance costs, etc. The airlines are gambling that the fuel issues are just a temporary problem. Otherwise they would be massively downsizing their personnel, reducing flights, and selling assets. These actions are fairly irreversible (unlike the decision of a private trucker to park his truck), so the airlines have to think long and hard on what the fuel prices are going to do.
Consider if the airline did assume that fuel prices are going to remain high. They would sell their assets and reduce their size to survive. If the prices later did drop they would be a small company that would have to spend many years to be able to make huge profits again.
Now consider if an airline assumes prices are going to drop. If they do, then they will be able to survive and recoup their losses. If prices remain high, they would go bankrupt, but perhaps the government would bail them out (killing the requirements to pay pensions and the like). Then later they could make reasonable profits as a smaller company (once out of bankrupt status).
I heard somewhere in Florida some independent truckers were parking their rigs on very busy Florida toll roads in protest.
None in the shipping industry has such mandates placed on them -
I hear you - That is why GWB should have stopped oil into SPR long ago - Cut the legs out of the spec guys who are costing everyone a fortune -
Again, slowdowns from energy prices when they finally hit...hit quickly -
I hear you - That is why GWB should have stopped oil into SPR long ago - Cut the legs out of the spec guys who are costing everyone a fortune -
Again, slowdowns from energy prices when they finally hit...hit quickly -
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