Diesel Falls 21.6¢ to $3.659
By Frederick Kiel, Staff Reporter
This story appears in the Oct. 20 print edition of Transport Topics.
The economic chaos gripping the world’s largest economies continued to feed one positive storyline last week, as the drop in U.S. fuel prices picked up speed.
The average retail price of diesel dropped 21.6 cents to $3.659 a gallon, the largest one-week drop in three years, while the gasoline average posted its largest-ever decline, according to the Department of Energy.
The diesel drop left commercial trucking’s main fuel at its lowest level since March 3, when it was $3.658, DOE’s Energy Information Administration said after its Oct. 14 survey of fueling stations.
Diesel is now $1.105 a gallon below its all-time high set on July 14 but still 62 cents higher than it was in the corresponding week a year ago. The decline last week was the largest since October 2005, when prices fell following a string of Gulf Coast hurricanes.
DOE also said the average price of gasoline fell 33.3 cents to $3.151 a gallon, the largest one-week drop since DOE began keeping weekly records in August 1990. Gasoline is now 38.9 cents a gallon more expensive than it was in the same week of October 2007.
“There are two things going on that’s driving down diesel,” EIA economist Neil Gamson told Transport Topics. “First, it’s a pass-through of the drop in crude oil prices, from over $145 a barrel down below $80. Secondly, the economy is slowing down, which means there is less demand for freight and therefore less demand for diesel, which also pushes down prices.”
The price of crude closed at $69.85 a barrel on the New York Mercantile Exchange on Oct. 16, the lowest closing price since Aug. 27, 2007.
“Clearly, a declining fuel environment is a positive for the transportation industry,” Todd Fowler, transport analyst at KeyBanc Capital Markets, Cleveland, told TT. “Paying $3.65 versus $5 a gallon will reduce the headwinds fleets have been fighting.”
Fowler said truckers get a twofold benefit from fuel surcharges.
“The fuel surcharge does not capture 10% to 20% of the miles that most trucks go — the ‘empty miles’ without freight — so those miles without income will be a lot less costly,” Fowler said. “They’ll also get some benefit from the lag of surcharges and further fall in diesel before a new surcharge is put on.”
He added that news of the concurrent deep drop in gasoline prices has been lost in the blaring headlines of the global financial panic.
“Gas prices have undergone a significant decline, and that puts extra dollars into consumers’ pockets,” Fowler said. “I think they’re going to spend a lot of it, especially around Christmastime, and that could have an indirect benefit for the transport industry.”
“Before the price surge, we had a fuel surcharge, but we didn’t change it on any schedule,” Gayle Lopopolo, co-owner of Vincent Ganduglia Trucking, Fresno, Calif., told TT. “Sometimes, we didn’t change it for two or three months, and we’d hold off even if diesel went up.”
However, since the surge began, Lopopolo designed a weekly fuel charge program for the company.
“We base it on the DOE’s weekly retail prices for California,” she said. “I designed the grid that we use, getting ideas from other companies, and plot the surcharge each week. For every 9 cents of change in fuel price per gallon, the percentage goes up or down on the grid.”
Lopopolo said that for the week of Oct. 13, the company charged 26% additional to the freight fee for fuel.
The company buys its fuel in bulk from three companies that take payment in 10 days to 30 days, which also helps to even out price swings, she said.
Don Eddins, president of J&N Trucking Co., Greenwood, Miss., said that the company “didn’t make a lot off surcharges, now that prices are on their way down.”
“It hurt when prices were going up,” Eddins told TT. “If it’s on a downward swing, you’re getting the benefit, but everyone’s adjusted to price changes now, so it’s not much, but it’s better than nothing.”
