All truckers work diligently to drive safely and make sure accidents are not a part of their day-to-day. However, a few things other than an accident ruin a trucker’s day like looking up and seeing that red fuel sign for diesel a few cents higher than the day before. Unfortunately, that hit in the gut has been a near-daily experience for weeks during 2022.
Dealing with the Biggest Single Cost
Fuel is, of course, the primary variable expense every trucker and trucking firm faces. Depending on the rig and total miles driven, just one semi will consume an average of $50,000 to $70,000 of diesel per year. Fears are that for 2022, that number could easily exceed $100,000 to $120,000, or more. Worse is the fact there is no direct correlation to ensure the revenue generated by driving those miles will increase proportionality to that number.
Compounding the situation further is the lack of new commercial truck units to replace older, less fuel-efficient vehicles. As the average miles showing on trucks increase, the average miles per gallon achieved declines. Also, the average cost of annual maintenance increases.
Which leaves the industry and its drivers asking, “What got us here and where do we go from this critical juncture?”
More than a Perfect Storm
Answering those questions is a hot topic today. A recent article in Transportation Topics tackled the issue and provides some worthwhile insights. It quickly becomes evident that the issue is far more complex than simply blaming the situation on the war in Ukraine. While that crisis has made the fuel price crisis more intense, it is not the only factor.
According to Tom Kloza, founder of Oil Price Information Service, several forces have come together at a bad time for those depending on diesel fuel for their livelihoods. He points out:
- A severe shortage of capacity at refineries on both U.S. coasts is constraining the conversion of crude oil into gasoline and diesel. This is due in part to the fact that 13 U.S. refineries have shut down or switched to other types of production since the start of the pandemic.
- More than 1 million gallons of diesel are being shipped daily to Latin America to help deal with the shortages caused by sanctions on Russia.
- Crude prices are higher.
- U.S. driving levels are reaching pre-pandemic levels, pushing up demand.
- Russian exports are ways down, forcing European nations and others to seek supplies elsewhere, further driving up demand and lessening supplies.
- Growing inflation is increasing the core costs of diesel production at every level.
The Outlook: No Short-Term Relief
There are two factors in looking to the near-term price situation. The first is attempting to predict just how the price per gallon might go. The second is when there might actually be a decline from the historic $5.613 per gallon being flashed on those fuel station signs.
According to another quoted analyst, Phil Flynn, “The big picture on diesel is a slow-moving nightmare. We have closed a lot of refineries. There is a global shortage of capacity, and we are losing the refining capacity faster than we can replace it.”
These factors are leading to some discouraging predictions. Phil Verleger, a widely respected energy economist, was quoted recently as stating, “The tight supply could send the average US price of diesel to $10 a gallon by the end of the summer…”
While the pandemic created a new awareness and appreciation for commercial trucking among consumers, the increasing fuel prices will give them another stark reminder. Fuel price increases of the current magnitude will be passed on in higher prices to consumers, compounding the current inflationary factors.
While there is no good news in the near future, the priority is to keep the goods moving, even with brutally higher fuel costs.