Chart of the week: Diesel Truck Stop Price Per Gallon, Department of Energy Weekly Average Diesel Price, Ultra Low Sulpur Diesel Price, Fuel Distribution to Retailers and Wholesalers – US SONAR: DTS.USA, DOE.USA, ULSDR.USA, FUELS.USA
Wholesale diesel prices (ULSDR, light green) rose more than 30% last week, while retail prices (DTS daily in white and DOE weekly in yellow) rose more than 14%. The speed of these price changes may have more impact than the absolute cost, which until Friday remained below all-time highs. While shippers will certainly feel the impact of rising transportation costs, shippers will also face pressure from underlying wholesale or shelf price increases.
Fuel typically accounts for approximately 20% to 25% of the total cost of trucking, although this proportion can fluctuate depending on how expensive or cheap the fuel is. From a carrier’s perspective, rapid increases in fuel prices can wreak havoc on budgets. For carriers, fuel is a critical component of operating expenses that must be actively managed.
The latest oil market disruption is the most significant since the Russian invasion of Ukraine in early 2022. It is also the first large-scale disruption since OPEC voluntarily capped supply in the summer of 2023. That event proved relatively short-lived as prices moderated later that fall.
For most carriers, fuel is largely a passed-through cost, typically recovered through a fuel surcharge tied to the weekly average diesel price published each Monday by the DOE. Most fuel surcharge tables assume a fuel efficiency of approximately 6.5 to 7 miles per gallon. There is also usually a fixed amount of fuel included in the base transportation rate, which generally covers the cost of fuel up to approximately $1.00 to $1.50 per gallon. As a result, most surcharge tables start around this level and gradually increase as diesel prices rise.
Many large fleets have purchasing agreements with fuel suppliers that allow them to buy wholesale fuel at or slightly above the wholesale price. While this may seem like an arbitrage opportunity on the surface, many operators use this spread to offer more competitive pricing when the market is balanced and capacity is relatively loose, as has largely been the case over the past three years.
When wholesale prices rise faster than the average retail price, the cushion created by the spread between retail and wholesale diesel (labeled FUELS in orange on the chart) is compressed. The smaller this differential, the less flexibility companies will have to pass on fuel costs effectively. When prices go down, the opposite happens. Recently, this spread has narrowed from around $1.02 to $0.68 per gallon.
The speed of change is particularly important, as pricing teams often adjust rates based on historical data. It is likely that many contract rates were structured assuming a differential closer to $1.20 per gallon. This means that although rates are increasing through the fuel surcharge mechanism, they may not be improving profitability and, in fact, could be reducing it.
Spot rates tell a different story. Many smaller fleets and owner-operators do not have the volume necessary to secure fuel purchase agreements. Their costs are more closely tied to retail fuel prices, which are passed on to customers more directly and often more quickly.
.
Meanwhile, the trucking market appears to be transitioning to a tighter environment following a strong holiday season and the disruption caused by Winter Storm Fern. Spot rates (NTI) have been reluctant to fall after the late January storm paralyzed transportation networks. While it is difficult to isolate the direct effect of fuel prices from underlying market dynamics, rising fuel costs appear to have contributed to the recent rise in spot rates. As carriers continue to refuel at higher prices, these pressures could persist.
The trucking industry is no stranger to fuel price volatility, but the timing and magnitude of the current increase presents potential challenges for both shippers and carriers. For shippers, the concern is simple: higher transportation costs. For carriers, the impact is more nuanced, as pressure on margins and operating costs must be balanced with changes in market rates.
There are also broader economic considerations. Rising energy costs can eventually inhibit demand if they rise too much. Some level of rising fuel prices can support domestic economic activity, as the United States is one of the world’s largest oil producers. However, if prices rise too quickly, the resulting inflation and volatility can erode demand in other areas of the economy. As of last week, conditions had not reached that level, but many economists believe the duration of the conflict will be the key factor determining how disruptive this latest geopolitical shock ultimately will be to supply chains and the broader economy.
About the chart of the week
The FreightWaves Chart of the Week is a selection of SONAR charts that provide interesting data to describe the state of the freight markets. One chart is chosen from thousands of potential charts in SONAR to help participants visualize the freight market in real time. Each week, a market expert will post a chart, along with commentary, live on the home page. After that, the week’s chart will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presents the data in graphs and maps, and provides commentary on what transportation market experts want to know about the industry in real time.
The post Rapid Fuel Price Rising Hits Transportation Hard appeared first on FreightWaves.
