Transportation and shipping are the lifeblood of our country, serving to provide all of the basic needs of consumers, businesses, and more. Although, trucking itself relies on shipping demands and fuel prices, two things that have been fluctuating in recent weeks.
Balancing Industry Costs
Even though the holiday season is well underway, weak demands from shippers have made the recent hike in diesel fuel prices more painful for the industry. Making up anywhere from 30% to 40% of a fleet’s average spending, rising diesel prices could be marking an end to the two years of cheap fuel helping to sustain many companies.
Since the Organization of the Petroleum Exporting Countries (OPEC) agreed in late November to cut oil production, the futures market has seen more than a 10% increase in prices. At the start of this week (December 11, 2016) diesel hit a 13-month high at $2.49 a gallon, according to the U.S. Energy Information Administration.
The Effects of Rising Diesel Prices
Considering that fleets typically implement a fuel surcharge in order to pass along higher diesel costs to customers, there’s a certain amount of risk involved during a time when freight volumes are flat. With retailers and manufacturers having their pick of which trucks to hire and small fleets having less control over pricing, shippers may also opt to move goods by rail since fuel is a smaller portion of the overall costs.
Although many companies feel that rising diesel prices are still too small and too recent to have a major effect on business, it’s helpful to note that today’s cost of fuel is still half of what it was during 2008’s all-time high. While this is certainly no cause to trade in your truck anytime soon, this past weekend’s agreement to reduce output between non-OPEC producers, Russia included, has sent U.S. crude above $54 a barrel for the first time since 2015.
Yet, as mentioned earlier, one way to help to level out rising diesel might be a higher demand from shippers. Increased usage of e-commerce, especially during the holiday season could help to balance the costs associated with higher diesel. Meanwhile, many expect 2017 to bring an increase in gasoline prices as well, though by a smaller margin compared to diesel and crude oil. The projected increase will still be below 2014 and 2015’s price per gallon, so the impact remains to be seen.
For now, we can keep an eye on rising diesel prices and respond accordingly, especially in response to a new president taking office shortly. Additionally, sustainable and zero-emission vehicles are also making their presence known in the trucking world with the release of the Nikola One. It seems that things never really do slow down in the trucking industry, they just find new routes.