Diesel Gains 2.5¢ to $3.932 a Gallon

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

U.S. retail diesel prices resumed their upward march last week, as the national average increased 2.5 cents to a 30-month high of $3.932 per gallon, leading fleets to take wide-ranging steps to address their mounting costs.

The latest gain left the diesel average at its highest level since September 2008, the Department of Energy reported after its March 28 survey of fueling stations. It was the 12th increase in 13 weeks. Crude also hit a 30-month high last week, closing at $106.72 a barrel.

DOE also said the average for regular gasoline rose 3.4 cents a gallon to $3.596, also the highest level in 30 months. It too has jumped 12 times in the past 13 weeks.

Diesel has now climbed 98.1 cents since September and 99.3 cents from a year ago, outpacing the 79.2 cents per gallon rise in gasoline in that span.

“We haven’t seen an increase that has happened so rapidly in a long time,” said Allen Steele, CEO of Eleets Transportation, Jacksonville, Fla. “We are seeing a deterioration of margins.”

“There is a big discrepancy in revenue per mile,” Steele said, because the process of calculating and collecting fuel surcharges on some moves can affect as much as 20 cents per mile of revenue.

Fuel surcharges can be an issue when Eleets moves ocean carrier and railroad freight, Steele said, because some of their fuel surcharge calculation methods can leave payments lagging behind the actual cost of fuel truckers pay.

Steve Gordon, chief operating officer of Gordon Transport, Pacific, Wash., focused on multiple effects of price increases.

“When fuel is this high, you are trading off whether you will run the truck to the next load,” he said. “Six months ago, when fuel was much lower, we would run 180 to 200 miles to get a load.”

Gordon now has backed away from those long empty moves unless customers are willing to pay for repositioning, he said.

“The other big change is that we are looking at fuel surcharge agreements and those customers that have large deadhead moves,” Gordon said. “We are having discussions with customers whose fuel surcharge isn’t commensurate with their business.”

Diesel’s recent rise also sent some drivers back to “fuel school.”

“We are making [fuel-management classes] remedial,” Gordon said, for drivers with the lowest performance instead of just instructing drivers on best practices during orientation.

“We are always focused on how drivers are using fuel when it rises,” Gordon said. “We are more focused today.”

Gordon also is moving to make sure surcharges are collected on the cost of fuel to power refrigeration units, he added.

“Fuel is not our friend for the economy or the business,” Derek Leathers, chief operating officer of Werner Enterprises, said at a March 23 investor meeting.

“We’re staying focused on saving gallons as well as staying committed to a fair and reasonable reimbursement program” for surcharges, Leathers said.

Steele also addressed the effect that higher prices are having on drivers.

“We have a bunch of drivers out there working their butts off and not making much money,” he said. For drivers who aren’t company workers, “fuel is eating up their margins,” as well, Steele said. “If a guy can’t make money or repair an old truck, he can’t show the profitability needed to get a new one. It’s a horrible cycle.”

Kevin Knight, CEO of Knight Transportation, Phoenix, made a similar point last month during the Truckload Carriers Association annual meeting.

“Fuel is so out of control right now,” he said. “We don’t have the mechanisms to cover all of those additional costs.”

“The whole thing we try to make our customers understand is it all comes down to capacity,” Knight added. “If we don’t have a healthy enough industry, we can’t create capacity. It is an environment that will be challenging to work through. Just when people are feeling like they can buy a new truck, you see $4-a-gallon diesel.”

The trajectory of the diesel price increase has flattened this month, with an increase of just 6.1 cents per gallon since March 7 after a jump of 33.7 cents in the three weeks before that.

Oil prices followed a similar path as crude stood at $105.44 a barrel on March 7 and ended the month at $106.72 a barrel on the New York Mercantile Exchange.

Despite diesel’s rise, inventories still are rising. Distillate inventories climbed by 710,000 barrels, and crude oil inventories rose nearly 3 million barrels last week over the week ended March 21, the Energy Department reported.

“The U.S. market is very well supplied,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas, told Bloomberg News. “Gasoline demand is now lower than it was a year ago, which may be a signal that higher prices are starting to hurt consumers.”