08/02/2022 20:21
The diesel market in the United States is in the midst of its greatest
crisis since the 1970s oil shocks. The diesel supply has been rapidly
dwindling, driving inventory levels to levels not seen in 17 years. Since 2020,
the U.S. national reserves have decreased by 43%. Many truckers are concerned
about their livelihoods due to rising diesel costs and the threat of fuel
restrictions.
Some areas of the United States have experienced more contraction than
others. Stockpiles on the east coast have dropped to their lowest level since
1990. At the same time, inventories in the middle Atlantic area have fallen 78%
since the outbreak began.
Rising fuel costs are frustrating for businesses of all shapes and sizes.
High diesel prices combined with increased material and labor costs have led
the inflation in the United States to a four-decade high. As a result,
companies across the manufacturing and logistics industry continue to encounter
problems. They struggle to find qualified employees and modify their financial
sheets to match increased commodity prices.
According to the U.S. Energy Information Administration, the cost of
heavy-duty vehicle fuel has risen by more than $1.50 per gallon in less than
two months. The national average price of gasoline has been increased to $5.62
a gallon, a new high for the second week in a row. Prices in some areas have
topped $6 as well.
Trucking, the most common mode of transportation for American businesses,
accounted for 72% of all freight in 2019. Trucking firms apply a fuel surcharge
to each load to cover higher fuel prices and ensure that they continue to make
a profit. But, with diesel prices hitting record levels across the United
States, it is putting a burden on trucking companies' operations. It also
impacts companies that rely on these trucking companies for logistics and
wreaking havoc on their transportation budgets.
Even with current labor constraints and the growing need to fulfill faster
consumer shipping expectations, trucking companies find it harder to survive.
Increased diesel costs also eat into transportation profits through
post-delivery, empty-cargo “deadhead” miles, and other component expenses,
increasing prices further.
The price of diesel fuel, vital for industrial operations, has continued to
rise over the past few months. This has contributed to increased supply chain
costs and inflationary pressures on all sectors, from house development to
consumer product deliveries. These costs are particularly harsh on smaller
trucking fleets, which make up most of the highly fragmented U.S. trucking
sector. It is wreaking havoc on cash flows for companies that are typically
undercapitalized and have a little buffer to absorb cost increases.
According to the American Trucking Associations, commercial vehicles in the
United States use roughly 36.5 billion gallons of diesel yearly, and motor
carriers spent about $111.6 billion on diesel fuel in 2019.
Fuel surcharges are typically included in contracts by trucking companies to
compensate for rising diesel prices. However, the hundreds of smaller fleets
and independent owner-operators who make up most of the highly fragmented truck
sector will find it more difficult to pass on the additional costs as growing
operational expenses are already squeezing operators. Adding to the damage, the
base shipping prices on trucking’s spot markets are falling due to waning
freight demand.
According to analysts, fuel costs on inflation might strike a dent in
consumer spending if diesel prices continue high. It will impose significant
expenses on shippers and transportation businesses. According to economist
Anirban Basu, the increased cost of diesel fuel harms the U.S. economy’s
near-term outlook and increases the risk of recession in 2023.
Fresh produce is often more of a spot rate industry, and fuel costs will
significantly influence any of those smaller trucking firms. Rising diesel
costs have had and continue to influence the whole fresh produce supply chain.
According to the U.S. Department of Agriculture, the U.S. imported more than
$15 billion in fresh food from Mexico in 2021. Logistics accounts for one-third
to one-half of the cost of fresh produce. It’s easy to predict how rapidly
changes in that expenditure category will affect the base price.
We at Labworks USA partnered with several trucking companies and we hear
them. We support them.
Our partners unify all systems, internal and external, providing one
end-to-end solution to execute all operations In order to support our truckers
to save.
Want to save despite the fluctuating diesel prices? We are more than a DOT
Consortium. Connect with us
at Labworks USA today.