Diesel Drops 4.6¢ to $2.496 in 4th Straight Weekly Decline

This story appears in the July 27 print edition of Transport Topics.

U.S. retail diesel prices dropped 4.6 cents last week to $2.496 a gallon, the Department of Energy reported — the fourth straight decline — but rising crude oil costs will soon lead to a reversal of that trend, a department analyst predicted.

The national average cost of commercial trucking’s main fuel has dropped 12 cents during the past month and is $2.222 a gallon less than a year earlier, DOE reported after its July 20 survey of fueling stations.

DOE also said the average retail gasoline price fell 6.5 cents to $2.463 a gallon last week. Gasoline has declined 22.8 cents over the past four weeks and stands $1.601 cheaper than the corresponding week in 2008.

“Diesel and gasoline prices have been coming down, following the path of crude oil that hit its latest low on July 13,” Neil Gamson, an economist with DOE’s Energy Information Administration, told Transport Topics. “There’s a usual lag in retail prices catching up to crude that stretches from a week to a month.”

American Trucking Associations estimates that the U.S. trucking industry uses 752 million gallons of diesel weekly and 285 million gallons of gasoline. At those rates, truckers paid $1.67 billion less for diesel and $456 million less for gasoline than it did during the corresponding week of last year.

However, Gamson said crude oil has risen daily on the New York Mercantile Exchange — from $58.32 on July 13 to close at $67.16 on July 23.

“If the price of crude continues its climb, we’ll see, in a week or so, a little bit of an increase in both gas and diesel retail prices,” Gamson said. “The spot prices of gasoline are already up over 2 cents a gallon, and heating oil — and therefore diesel — is up nearly 3 cents.”

One trucking executive said the industry always has to contend with fuel surcharges that lag behind current price movements, but an increase of a few cents was not nearly as difficult to overcome compared with last year, when diesel rose to nearly $5 a gallon.

“Fuel surcharges are universally accepted in the industry now,” said Dennis Morgan, chief operating officer of truckload carrier Cowan Systems, Baltimore. He said Cowan’s fees are based on DOE prices but there is no way to completely compensate for the weekly surcharge adjustment and day-to-day price changes at the pump.

As a result, he said, Cowan tries to account for fuel increases when it bids for contracts.

“But if you put your price surcharge too high, you won’t be competitive,” Morgan said. Paying fuel prices above DOE’s weekly figure is “the cost of doing business that the carrier has to absorb.”

In that context, he said Cowan Systems could easily absorb an increase this week of two or three cents above DOE’s July 20 figure.

“We’ve seen retail diesel swings of 10 cents in an hour, which really do hurt, so that we can live with an increase of a few cents in a week,” Morgan said.

He added that most fleets were able to recover only about 80% to 90% of fuel increases through surcharges, because they cannot charge for “deadhead” miles — running tractors without loads.

With more than 1,000 company tractors and nearly 1,800 trailers, Cowan ranks No. 95 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.

Another executive said his fleet has instituted a policy of changing the fuel surcharge monthly rather than weekly.

“The secret for the customers is being consistent, which a monthly schedule allows, and the weekly swings in diesel price doesn’t hurt the driver or the customer, because it all averages out in the end,” said Mike Coatney, CEO of Acme Truck Line, a flatbed and heavy specialized carrier based in Harvey, La.

“We pass on 100% of our fuel surcharge directly to our owner-operators, which our customers know, and we don’t put a fuel surcharge on loads that our own trucks haul,” Coatney added.

Acme, which is No. 97 on TT’s for-hire list, contracts with more than 1,350 owner-operators and runs 644 straight trucks and 225 company trailers.

DOE reported on July 22 that domestic crude stocks dropped 1.8 million barrels to 342.7 million in the week ended July 17. Despite that decline, stockpiles are 7.3% higher than the five-year average for the period.

The report also showed that gasoline supplies climbed 813,000 barrels to 215.4 million, the sixth straight gain, Stockpiles of distillate fuel, which includes diesel, rose 1.22 million barrels to 160.5 million, the highest since January 1985 and 27% above the five-year average.