U.S. Diesel Average Dips 0.1¢ in First Decline Since November

This story appears in the March 28 print edition of Transport Topics.

U.S. retail diesel prices trickled down last week for the first time in nearly four months, the Department of Energy reported, but analysts said it was unlikely the trickle would start a downward trend at the pumps.

The 0.1-cent drop to $3.907 a gallon was the first diesel price decrease since Nov. 29. In between those dips, the diesel average has risen 74.6 cents, DOE reported after its March 21 survey of fueling stations.

DOE also said the average price of regular gasoline dipped 0.5 cent a gallon to $3.562. Gasoline has risen 14 out of the past 16 weeks, increasing by 70.6 cents over that period.

Diesel is now 96.1 cents a gallon more expensive than it was in the comparable week a year ago, while gasoline was 74.3 cents a gallon higher, DOE said.

“Despite the slight drop, we can’t say fuel prices will continue to fall,” Tancred Lidderdale, senior economist at DOE’s Energy Information Administration, told Transport Topics.

“The price of crude oil — the main reason now for retail fuel swings — had dropped about $8 a barrel since its early March high,” John Felmy, chief economist at American Petroleum Institute, told TT. “That’s the reason that retail prices fell, but it’s probably just a leveling off only, if that.”

Crude oil shot up last week, reaching a 30-month high of $105.75 a barrel on March 23 on the New York Mercantile Exchange, Bloomberg News reported. Crude had dipped as low as $97.18 a barrel on March 15 and closed at $105.60 on March 24.

“There are a number of reasons for crude’s roller-coaster ride, but a main one . . . is heightened concern over unrest in North Africa and the Middle East and fear of the spread of that instability to neighboring countries,” EIA’s Lidderdale said.

Herb Schmidt, president of Con-way Truckload, Joplin, Mo., said that even the smallest of price declines was a positive change.

“Anytime the price of fuel decreases, it filters throughout our system, whether at the pump from the nonbulk distributors or, where we like to buy a lot of fuel, at our Con-way terminals,” Schmidt said.

Con-way Truckload, which operates 2,600 tractors and 8,300 trailers, is a subsidiary of Con-way Inc., which ranks No. 6 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.

“Also, any time fuel goes down, the biggest positive is that it allows our fuel surcharge to heal us,” Schmidt said. “When fuel is rising, we always have a seven-day lag time to put the increases into our fuel surcharges. We get killed with fuel is going up every week.”

Schmidt said that most Con-way customers understand the need for a fuel surcharge and accept the weekly changes.

“You can’t account for fuel in freight rates because it is so volatile . . . so that we don’t get a lot of push back from customers,” he said.

He said that Con-way Truckload was still seeking technological improvements for fuel economy.

“We are now halfway through our program to convert all of our trailers to super-single tires, which will save us one-tenth to two-tenths of a mile per gallon,” Schmidt said.

He added that Con-way previously had converted all of its tractors, which also brought two-tenths to three-tenths of a mile in fuel savings.

“We’ll have the entire trailer fleet converted by the end of 2012,” he said.

Con-way also has begun spec’ing its tractors with heating units that run on a separate diesel engine, he said.

“We’re watching the price of fuel very closely to decide whether to go with full auxiliary power units,” he added. “We have already negotiated a deal so that we could get full APUs, but only if we’re confident the price of fuel will remain high for a significant period of time. We decide quarterly whether to proceed.”

Unlike Schmidt, Perry Pappas, vice president of Total Xpress Inc., Columbus, Ohio, said the decrease was too small to affect his business.

Total Xpress, a regional intermodal company, contracts with about 75 owner-operators to haul freight in and out of rail yards in Ohio.

“I just set my fuel surcharge for April, all of which we give to the drivers, [raising it to] 27% of freight charges,” Pappas said, adding he set it after DOE announced the price decrease. “We had 601 customers last year, and now, I have to start calling all of our current customers to inform them of the increase. Probably 5% will agree to pay it.”

He said that customer reluctance to pay the full surcharge hindered the company’s ability to expand, adding that it worked with 125 owner-operators before the recession.

“Three or four owner-operators dropped out this week because of the fuel increases,” Pappas said.