Diesel Fuel Price Falls 6.2¢ to $3.888 a Gallon

This story appears in the July 4 print edition of Transport Topics.

The average price of a gallon of retail diesel in the United States declined 6.2 cents to $3.888 last week, the Department of Energy reported.

Likewise, the retail gasoline average fell 7.8 cents to $3.574, DOE said after its June 27 survey of fueling stations.

Since hitting a nearly three-year high in early May, diesel has fallen a total of 23.6 cents in eight weeks. Its most recent surge started in late September and hit a peak for this year on May 2 at $4.124. Despite the decline, the average price is still 93.2 cents, or 31.5%, higher than a year ago.

Gasoline peaked this year on May 9 at $3.965 a gallon, the highest price since July 2008. In the seven weeks since then it has fallen 39.1 cents. A year ago the gas average stood at $2.757.

Crude oil futures last week rose back to the $95-a-barrel range, shrugging off the federal government’s decision to sell oil from the strategic petroleum reserve. Trading on the New York Mercantile Exchange closed at $95.42 on June 30, up from $90.61 on June 27.

Carrier managers said the price retreat at the pump is welcome — especially in terms of cash flow.

“This is nice for the moment,” said Barbara Cytlak, controller of the Garner Transportation Group, a Findlay, Ohio, truckload carrier, referring to the decline as a “reprieve.”

“We were constantly putting cash out the door. We were always financing fuel,” Cytlak said, adding that the recent decline means carriers do not have to eat into working capital, such as lines of credit.

That means interest payments might go down as well as diesel bills — at least for the moment. The spread on payment terms is a critical factor, she said, in that fuel vendors typically get paid after seven or eight days, but shippers can take 30 to 45 days to pay a trucking company for transportation.

The stepping back “buys us some breathing room,” said Michael Zavislak, chief operating and financial officer of Transportation Services Inc., Romulus, Mich., a longhaul truckload carrier. Zavislak said he and his colleagues are enjoying the break but still proceeding with investment plans to make their fleet of 580 power units and 2,000 trailers more fuel-efficient.

“Now we’re looking at trailer skirts. At $3.25 a gallon for diesel, the return on investment wasn’t there, but at $3.50 a gallon, you can start to see the ROI on skirting,” Zavislak said, adding that he is also seeing worthwhile results from the company’s electronic tire-pressure monitoring system.

“I stare at fuel prices every day,” Zavislak said, indicating that part of his time is spent on the search for technological and equipment improvements to trim the rate at which TSI burns diesel, but lately he’s also been talking a lot to shippers about fuel surcharges.

“We have reapproached shippers on fuel surcharges, mainly on mileage assumptions,” Zavislak said, adding that the old percentage-based surcharges are almost completely gone, and cents-per-mile arrangements are the current standard. To make such a formula, though, a mileage component is necessary.

“Some of these were written based on 6.5 to 7 miles per gallon. We haul loads of 38,000 to 43,000 pounds, so that’s really a stretch, but now we have more data behind us on mileage performance,” Zavislak said.

“Shippers are expressing an incredible interest in miles-per-gallon efficiency. They want data that’s absolutely accurate, and they are asking many questions with a level of complexity that I’ve never seen before,” he said, listing empty miles, unloaded miles and lane design as topics of conversation.

As for TSI’s assumption on fuel prices to come, Zavislak said $4 a gallon will be back.

“It will be all hands on deck next year for fuel prices if the economy improves,” he predicted.

Ryder System management said June 28 they think the demand for alternative-fuel vehicles will only grow because of economic and environment reasons. The company said it already has secured lease agreements for 87 heavy-duty natural-gas trucks.

On the NYMEX, crude remained significantly below its April 29 peak for the year of $113.93 a barrel. The price of a futures contract fell from $95 a barrel to less than $91 after the United States and other national governments announced strategic petroleum reserve sales June 23.

However, a week later, the price of oil rose when DOE reported June 29 that U.S. petroleum stocks were declining.

“The numbers were very bullish for crude,” Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage in New York, told Bloomberg News June 29. “They show that we’re losing a lot of imports already, and we could see more of a decline in expected deliveries to the U.S. because of the [Strategic Petroleum Reserve] release.”