Sky-high diesel prices are squeezing truckers, farmers and consumers

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Sky-high diesel prices are squeezing truckers, farmers and consumers

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When long-haul truck driver Deb LaBrie hits the road to deliver pharmaceuticals, she has strategies to contain costs. She avoids the West Coast and Northeast, where diesel prices are highest. She organizes her delivery route to minimize “jamming” – driving an empty truck between deliveries.

What if the customer’s load is too far or can’t pay more for fuel? She turns down the job.

“It breaks my heart because I either have to say, ‘No, I can’t afford it,’ or, ‘I can, but you’re going to have to pay for some of my gas to get me there,'” LaBrie said. “I hate doing both because it’s not the customer’s fault. It’s not our fault.”

The price of diesel fuel has risen sharply in recent months – far more than even regular petrol – especially since Russia invaded Ukraine in February. Moscow’s attack prompted many nations to reject Russian fuel, removing a major source of oil, the main component of diesel fuel, from the market and raising prices dramatically.

For months, drivers have been feeling the pain of high gas prices. Many may not know that they are also taking the brunt of the much more expensive diesel fuel. That’s because the goods consumers buy — from cereal and orange juice to Amazon diaper deliveries — are delivered by diesel-powered trucks, trains or ships. These inflated prices are then passed on from company to company until they reach consumers in the form of more expensive goods.

“People are paying less attention to diesel prices because people aren’t going to the pump and using it,” said Matt Smith, lead oil analyst at Kpler, a research firm. “But diesel has a larger impact and already has a really big impact on the whole economy.”

Diesel fuel averaged $5.52 a gallon nationally on Tuesday — a hot 68% more than a year ago, when it sold for just $3.28. By comparison, a gallon of regular gasoline costs an average of $4.50, up 42% from a year ago.

High gasoline prices have eased somewhat in recent weeks. But diesel remains chronically high, with U.S. refineries operating near capacity. Unless prices ease, the ripple effects of high diesel could worsen as costs deter some trucking companies from taking on work unless they can convince their customers to pay more for fuel.

“There will be more logistical shortages,” said Phil Verleger, a longtime energy economist. “Americans will find more empty shelves and higher prices.”

If they don’t quit, many truckers choose lighter loads or work longer hours to make up for the money lost on fuel, according to interviews with truckers and industry executives. Farmers who harvest hay and plant corn with diesel tractors are taking a financial hit. Delivery companies install their own fuel pumps to keep costs down. In the end, consumers are left to bear the brunt.

“If you’re a farmer, your energy costs are higher and therefore it costs more to produce grain, and that drives up the price of grain, and that drives up the price of food,” said Smith, the Kpler analyst.

Even more than gasoline, high diesel prices increase the cost of goods because delivery costs have gone up a lot. Consumer prices rose 9.1 percent in June compared with 12 months earlier, the government said last week. The share of fuel oil in the consumer price index almost doubled compared to the same period last year.

“Those energy costs are making their way into products, all kinds of different consumer products,” Smith noted.

One reason diesel prices haven’t yet fallen like gasoline is that OPEC countries have slowed their oil supplies, and Middle Eastern oil tends to produce more diesel than, say, parts of Texas. Another factor is that China has reduced its diesel exports, presumably to help meet its net-zero greenhouse gas emissions targets.

And in the United States, refineries that make diesel from crude oil are essentially maxed out. The nation has 11 fewer refineries operating today than before the pandemic, according to the American Petroleum Institute. One refinery that served the East Coast closed after an explosion in 2019 and never reopened. And some refineries in California have been shut down to convert to renewable fuel.

“We use a lot of diesel, probably more than what these refineries can produce,” said Bob Costello, chief economist for the American Trucking Associations.

President Joe Biden’s visit to Saudi Arabia last week was aimed in part at encouraging OPEC to produce more oil, which would mean more diesel worldwide. Although no major deal was announced, Prince Mohammed bin Salman hinted that Saudi Arabia could potentially produce more oil.

But expecting OPEC to export more oil during the high-demand summer months may be unrealistic, said Amy Myers Jaffe, an energy expert at Tufts University.

“The important thing,” she said, “is to make sure that our allies, along with OPEC, don’t reduce flows to the market at any intersection, especially if we have some kind of disruption.”

Even if U.S. oil and gas producers ramp up production, tough challenges will remain — namely finding additional refinery space and then enough pipeline capacity to transport additional diesel fuel.

Meanwhile, some truckers are struggling to adjust while keeping goods moving. Sherri Brumbaugh, who runs a fleet of 90 trucks as the head of Garner Trucking, has installed more fuel pumps at a location in Findlay, Ohio, because she can get diesel cheaper than her truckers can on the road.

She also monitors where her drivers buy fuel to make sure they’re making wise decisions. And it tries to absorb the higher fuel costs itself as much as possible.

But “at some point,” she said, “you have to go to the customer and say, ‘I’ve got to raise this rate.’ “

Brumbaugh declined to say how much it raised prices for its customers, which range from bottled beverage companies to dishwasher manufacturers.

Lately, she said, there have been fewer retail loads to haul. “This could be an indication of a recession,” she said. “I hope not.”

Cargo Transporters, which operates 470 trucks and 1,800 trailers, also raised its prices and cut some jobs in Florida, where trucks often have to return empty-handed, said Shawn Brown, the company’s chief executive. When there is no cargo in a truck, nobody pays the trucking company. But the driver still needs to be paid, and the fuel is still burned.

“When that trailer isn’t loaded and there’s no revenue generated and a mile is driven, we eat that,” Brown said.

UPS and FedEx more than doubled their fuel surcharges for ground deliveries from a year earlier, according to calculations by Cowen Research and AFS Logistics.

Farmers also face higher costs. But they cannot easily raise prices because they often do not control the price of their goods. The prices of milk and grain, for example, are determined by the market.

“It costs us more to ship to get things to the farm, and it costs more to haul things,” said David Fisher, a dairy farmer in Madrid, N.Y., who is president of the New York Farm Bureau, which lobbies governments on behalf of the farmers. “We’re planting crops and harvesting, and the costs of that will be higher, but we don’t know if we can recoup those costs.”

To burn less fuel, he considered skipping tillage, a maneuver in which a tractor manipulates the soil to improve crop growth. But if you do, you risk having less harvest to harvest.

A year ago, Fisher was spending $8,000 a week on fuel. This year, he said, the figure has reached about $20,000.

“Everybody I talk to has a lot of concerns about these fuel prices,” Fisher said.

Biden has called on Congress and states to freeze their gasoline or diesel taxes for several months to help ease the pain for drivers, but Congress appears reluctant to enact a tax holiday. Some states have temporarily suspended some taxes on diesel and other motor fuels.

With diesel prices continuing to be high, LaBrie and her husband are working longer hours to manage costs. They were on the road for four days and back in Missouri for three. Now, she said, “we have to stay out for five — sometimes six — days to make up for what we’ve lost in fuel.”

“Most truckers like to think that we’re serving our country, moving goods to keep America going,” LaBrie said. “But at what point do we make it free? I can’t run a business that way.”



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