Fuel Prices Continue Slide

By Dan Leone, Staff Reporter

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

The national average price of diesel fuel fell another 17.7 cents to $3.482 a gallon last week, the lowest level since mid-February, the Department of Energy reported.

The gasoline average, meanwhile, plunged 23.7 cents to $2.914 a gallon, a week after a record 33.3-cent decline, DOE’s Energy Information Administration said after its Oct. 20 survey of fueling stations.

“The economy is the major driver at this point,” said Mary Novak, an energy analyst with IHS Global Insight Inc., Waltham, Mass. “As the U.S. economy has weakened, the European economies have weakened more. Relatively, the value of the dollar has gone up, and as the dollar goes up, the price of oil goes down,” bringing the price of refined fuels down with it.

The diesel average has fallen $1.282 a gallon from its July 14 peak, declining every week but one over the past three months, according to DOE data.

Similarly, the gasoline average has fallen $1.20 a gallon from its July 7 record of $4.114, DOE said. In that time, the average posted only one weekly increase: an 18.7 cent jump in mid-September.

In spite of the most recent declines, the diesel average is still 38.8 cents a gallon higher than the corresponding week of 2007. The gasoline average is 9.1 cents above year-ago levels, according to DOE.

EIA economist Neal Gamson noted that diesel and gasoline prices are “following the price of crude.”
Crude oil last week dropped to its lowest levels since June 2007, falling to $66.75 on the New York Mercantile Exchange on Oct. 22.

Some publicly traded trucking companies said in recent earnings reports that falling diesel prices have helped their bottom lines, as surcharge adjustments have lagged behind rapid price declines and trimmed expenses associated with empty miles and idling.

However, at least one carrier warned that cheaper diesel was stoking competition for already-scarce freight.

“The diesel price decrease prevented some weak carriers from failing, or encouraged them to bring on capacity that had been idled, both of which contributed to more competition for less freight,” truckload carrier USA Truck Inc., Van Buren, Ark., said in its third-quarter earnings statement.
 
Elsewhere, trucking executives said their companies were still smarting from the summer’s record fuel prices, and they remained leery that lasting fuel relief was forthcoming.

“All I’m doing now is making back what I lost on the upside,” said Bill Smerber, president of regional truckload carrier CPS Express, referring to the recovery of fuel surcharges.

Because fuel surcharges usually are adjusted periodically, shippers effectively benefit from a temporary discount when prices rise rapidly. Likewise, carriers benefit when prices fall, Smerber said.

Moreover, “even though I’m giving my owner-operators 90% of what I get on the fuel surcharge, I still lost eight or nine of them because of the fuel situation,” Smerber said, adding that CPS had replaced some, but not all, of the contract drivers it lost during the summer fuel crisis.

CPS Express, Mira Loma, Calif., has about 80 trucks in its fleet, half of which are run by owner-operators. The company buys some of its fuel in bulk and uses a fuel-card provider to lock in discounts at truck-stop chains frequented by the company’s drivers.

Smerber estimated that using the fuel card saves the company “anywhere from just a few cents a gallon to as much as 30 cents a gallon,” compared with retail prices.

An executive with another carrier likewise was skeptical that the current slump in fuel prices would provide meaningful relief.

Fuel is “going to go back up,” said Ronny Betz, director of fleet operations for truckload carrier Venture Logistics, Indianapolis. “You know it, I know it, we all know it. You’ve got to conserve fuel.”

Venture Logistics’ conservation efforts include speed reductions and driver management, Betz said.

Meanwhile, the OPEC oil cartel was expected to meet on Oct. 24 in Austria to discuss possible production cuts.

Oil last week had fallen about 21% from 2007 levels. The price of a barrel of crude is down almost 50% from its July 3 record of $145.29.