Diesel Average Dips 2.7¢

This story appears in the Sept. 14 print edition of Transport Topics.

The average retail price of U.S. diesel dipped 2.7 cents to $2.647 a gallon, breaking a string of six small weekly increases that began in mid-July, the U.S. Department of Energy reported.

Including last week’s decline, the price of diesel climbed 15.1 cents, an average of about 2 cents a week, since July 20.

Gasoline prices last week declined 2.5 cents to $2.588, the fourth straight weekly drop.

Modest changes in diesel and gas prices weren’t reflected in the price of crude oil last week, which climbed toward $72 a barrel, rising $3 in a single day, and closed at $71.94 on Sept. 10.

With diesel moving a few cents at a time this summer, fleets said fuel prices were currently not their primary issue.

“Business is so bad that fuel is not a concern,” said Fred Burns, CEO of Burns Motor Freight, Marlinton, W.Va. “We don’t have enough business to even worry about fuel. Forty out of 100 of our trucks are parked. This is the worst we have seen in 60 years.”

The economy “is beyond our control,” Burns told Transport Topics. “We can’t make consumers buy products, and we can’t make shippers produce more products. We haven’t seen any improvement at all. I don’t see much hope before 2011.”

“Our biggest difficulty, with the market being so competitive, is that some of our customers don’t want to pay fuel surcharges,” David Duncan, vice president of operations for Duncan & Son Lines Inc., Buckeye, Ariz., told TT.

Customers reject fuel surcharges in a tough market today because they have to keep their own costs under control, he said.

As a result, Duncan said, “it puts a lot of pressure on us to recoup our added fuel costs” when diesel rises.

Declining prices don’t help, he said, because when fuel falls, competitors lower their base rates in a bid to fill their trucks.

Duncan said he did see bright spots: The weak dollar has made U.S. exports more attractive and helped the company, which has an intermodal focus, to move more loads to Southern California ports. At the same time, he said, inbound volume is picking up there, as vessels are full when they arrive.

The weak dollar also was a factor in helping to drive up the price of crude last week while diesel and gas declined.

“There is a renewed focus on the dollar in the market now,” Phil Flynn, vice president of PFGBest Research, Chicago, told TT Sept. 9. “Until recently, it seemed the [oil] market was trying to focus on supply and demand more and more. Then . . . the dollar got slammed.”

The U.S. currency has fallen to its lowest level against the euro this year, and Flynn explained that typically there is an in-

verse relationship between the dollar and crude oil prices, because investors buy more oil and drive up the price when the dollar declines.

Meanwhile, Chinese auto sales in August rose 90%, helped by tax cuts and subsidies. Flynn said that trend “will lead to a huge increase in fuel use,” adding to the upward pressure on crude prices.

At this time last year, the picture was different.

A year ago, the average price for trucking’s main fuel was $4.059, almost 15% less than the July 2008 peak and more than 50% above last week. Gasoline was $3.648 a year ago, about 41% higher than the current price.

Like other fleets, Duncan and Burns are trying to cut costs wherever possible, even as they focus on finding more freight.

Duncan, for example, is reducing costs wherever possible, cutting speeds and adding auxiliary power units that lower idling costs.

“We have done everything possible [with fuel],” said Burns, whose company serves the housing and paper markets. “We are running the latest engines, aerodynamics. We’ve put heaters in the bunks. We’ve done everything we can to get the best fuel economy.”

The Energy Department’s latest short-term outlook, issued Sept. 9, predicted a modest rise in diesel costs during the fourth quarter to $2.74 from a third-quarter average of $2.62. Gasoline prices are expected to slip in the fourth quarter to $2.56.

The DOE forecast tacked 4 cents a gallon onto the agency’s diesel price prediction for 2010, with trucking’s main fuel now expected to cost $2.88, on average.