Diesel Rises 4.4¢ to $3.122

This story appears in the May 10 print edition of Transport Topics.

The average retail price of U.S. diesel jumped 4.4 cents to $3.122 a gallon last week, its highest level in more than 18 months, the U.S. Department of Energy reported.

The diesel average now has topped $3 for five straight weeks, and has risen 10 out of the past 11 weeks, DOE said after its May 3 survey of fueling stations. A year ago, diesel averaged $2.185 a gallon.

DOE also said the gasoline price average rose 4.9 cents last week to $2.898 a gallon, well above the year-ago price of $2.078.

The steady rise of fuel prices has pushed carriers to continue seeking ways to trim fuel use and costs.

Alan Ginkel, president and co-owner of Western Transport Inc. in Idaho Falls, Idaho, said he is skeptical the economic recovery is strong enough to push tonnage up to levels where higher freight rates will cover rising fuel costs.

“I don’t think there’s that much of a demand and . . . if fuel keeps going, I think it’ll slow everything down,” said Ginkel, whose all-reefer fleet hauls everything from beverages to potatoes.

Ginkel said that one of his drivers found specially designed mud flaps that have produced significant savings in the carrier’s fuel mileage. The flaps have slots that allow air to pass through, cutting resistance while also slashing mud accumulation.

“One of our drivers saw one of these on a truck, called in, and said, ‘You know, you guys should look at this,’ ” Ginkel said.

“It was kind of like, ‘Okay, we’ll test them,’ ” Ginkel said of his initial reaction. When the test truck’s fuel mileage increased, Ginkel said, he put the flaps on all his equipment.

With labor, the flaps cost about $120 per truck but can save as much as $1,500 per truck in fuel costs annually, he said.

Bob Kohlwes, co-owner of flatbed carrier BTI Special Commodities Inc., Des Moines, Iowa, said his firm tries to hedge a portion of its fuel purchases to offset rising prices.

“With fuel being as variable as it is,” Kohlwes said, “it’s just very hard to budget something because it’s always making a move, it’s always going up and you don’t know when it’s going to happen.”

Since the summer of 2008, when diesel prices soared to a record $4.764, BTI also put auxiliary power units on 75% of the 90 trucks it runs, said Kohlwes, who is chairman of the Iowa Motor Truck Association.

“We probably cut the idle time easily by 75%,” Kohlwes said.

Meanwhile, the near-term direction of fuel prices was difficult for analysts to forecast.

High expectations about a global economic recovery kept crude oil prices rising, which in turn kept diesel prices rising, said Tancred Lidderdale, a senior economist at DOE’s Energy Information Administration.

But between May 3 and May 6, crude prices plunged, falling almost $10 a barrel amid investor fears spurred by events in Europe and Asia. Crude oil settled at $77.11 a barrel on the New York Mercantile Exchange on May 6.

The biggest factor causing the plunge, Lidderdale said, is the possibility that the Greek financial crisis could spread to “the entire Euro zone” and, then, the rest of the world.

“But, perhaps, the less-talked-about possibility” is China, where “the potential for a tightening of their markets” would throw global economic recovery into doubt, Lidderdale said, about a report that that nation’s manufacturing sector was not producing as expected.

What happens next, he said, depends on whether “fear or calm takes over the markets.”

In the meantime, while the oil spill off the Gulf coast has drawn considerable attention, Lidderdale said it has not had an effect on crude or diesel prices.

“Actually, that wasn’t even a producing well. That was an exploratory well,” Lidderdale said. “I don’t think production from that well was even expected for two or three years.”

Crude and diesel prices, Lidderdale said, may be high relative to demand because investors believe the economy will continue to improve.