Diesel fuel costs are hitting trucking, affecting the economy as a whole

According to experts, diesel prices remain high, which causes significant costs for shippers and transport companies – the impact of fuel costs on inflation can affect consumer spending.

Economist Anirban Bassu said that the increase in the price of diesel fuel harms the immediate economic prospects of the United States and “gives a much better chance of recession in 2023.”

“These high diesel prices mean that despite the Federal Reserve’s first efforts to contain inflationary pressures, inflationary pressures will be high in the economy at the moment,” said Bassou, the company’s CEO in Baltimore. Sage Policy Grouptold FreightWaves.

Earlier this month, the Federal Reserve announced an increase in interest rates by half a percentage point, the biggest increase in two decades. The inflation rate in the US is 8.3%, about a 40-year high.

Bassu said consumer spending remains high, even at higher diesel prices, but that could change as shippers and trucking companies end up having to shift higher fuel costs to the public.

“One of the things we’ve seen in the US, especially on the East Coast, is that diesel stocks have dwindled, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, according to “There are still a lot of trucks on the road, and the supply is not able to keep up with demand,” said Basu. “The increased price of diesel fuel will be included in the price of everything that consumers buy.”

Prices for fresh food are rising

Jordan DeWart, head of RedWood Mexico, a company based in Laredo, Texas, said fresh produce includes fresh produce, which could be immediately affected by rising diesel prices. Redwood Mexico is part of Chicago Redwood Logistics.

“With products, it’s usually more in the spot rate business, and any of these small trucks will be heavily affected 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 that goes north from Mexico via Laredo, rates have been very steady, but fuel prices continue to rise, probably with any differences absorbed by transport companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially small companies, they really have a hard time.”

Not only cross-border operators feel oppressed. Manufacturers and shippers in the Rio Grande Valley in Texas are also suffering from rising fuel costs, said Dante Galeatti, president Texas International Manufacturing Association (TYPE).

“Our manufacturers, shippers, importers, distributors … basically our entire supply chain has experienced and continues to be affected by rising fuel costs,” Galeatti told FreightWaves. “One-third to one-half of the cost of fresh produce is logistics; you can see how quickly an increase in this cost category can affect the base price. “

The Rio Grande Valley is the epicenter of the Lone Star State Fresh Food Industry, which stretches to the southeastern tip of Texas along the U.S.-Mexico border. The valley grows more than 35 kinds of fruits and vegetables, which brings more than $ 1 billion annually to the state’s economy.

“More worrying is that this wave of fuel increases is in line with the statistics that our industry is paying 70% to 150% more than last year for OTR delivery,” Galeatti said.

TIPA, based in Mission, Texas, represents manufacturers, domestic shippers, imported shippers, specialized shippers, distributors and suppliers of materials and services.

Right now, producers and shippers of the Rio Grande Valley are absorbing higher introduction costs instead of passing them on to consumers, but that could change quickly, Galeatti said.

“While the fresh fruit and vegetable industry continues to experience rising costs for input materials (seeds, agrochemicals, labor, fuel, packaging, etc.), we are not yet experiencing sufficient profits upstream due to this increase in costs Said Galeatti. “Our industry refers to the accidental increase in overhead by 18-22%. At the same time, food inflation on fresh food fluctuates around 7%. This means that consumers are slowly experiencing costs, but they are not yet at a level commensurate with the cost of input.

Diesel prices are always high

The price of diesel fuel continues to rise across the country. Prices for diesel pumps on average $ 5.61 per gallon nationwide, according to weekly data from the Energy Information Administration (EIA). This is 51% higher than diesel prices in January.

California had the highest fuel prices in the United States – $ 6 per gallon of gas and $ 6.56 per gallon of diesel fuel, according to AAA. Diesel prices are also at a high of $ 6.41 in New York.

Rising prices for diesel and gasoline are caused by a combination of factors including rising demand and declining oil refining capacity, as well as disruptions in global markets caused by COVID-19, the current blockade in China and the ongoing conflict between Russia and Ukraine, said Rory Johnston. firm Street Street of Toronto.

“The common oil market feels much tougher because of the Russian-Ukrainian situation,” said Johnston, also the author of the newsletter. Commodity context, told FreightWaves. “What we have seen is a greater direct impact than the loss of Russian oil products; In addition to exporting millions and millions of barrels of crude oil a day, Russia has also exported many refined products, primarily middle distillates such as gasoline or diesel. ”

Several oil refineries on the East Coast – including Newfoundland and Labrador, Canada – shrank in the early days of the pandemic, damaging diesel power, Johnston said.

“There was also an oil refinery there Philadelphia which exploded just before the start of the COVID-19 period, “Johnston said.” Globally, and especially in the West, and especially in the northeastern United States, there is a lack of oil refining capacity. “

He said it does not envisage any easing from rising diesel prices in the next few months or more.

“Things will be very tough, at least next year, if we do not allow any economic recession and a certain slowdown in demand,” said Johnston.

DeWart said transport companies that do not have a fuel surcharge or contract component and depend on spot rates could be in big trouble over the next few months as diesel prices either continue to rise or remain above average.

“Their fuel prices continue to rise, but they really aren’t able to negotiate higher rates right now with a very narrow market,” DeWart said. “It really affects small trucking companies, anyone who decides to play in the spot market rather than lock themselves into contract rates. They are really in pain now. “

DeWart said it was very important for transport companies to set up a fuel reimbursement program, “just to protect themselves in the event that the cost of fuel rises even higher.”

Watch: What the Truck!?! the state of small freight traffic is discussed.

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