Summary
The referenced article notes that diesel fuel prices look like a bargain compared to last year. OK - $4.65 per gallon last year v. $2.60 per gallon per EIA is significant, but that comparison is not fair. The real issue to freight planners is the effect of price as compared to historical GDP (e.g. we have doubled cost averages over the last 5-years at today's prices) - and it’s getting uglier again too quickly.
Analysis
We all sighed a breath of relief when fuel prices dropped from their peak in mid-July 2008 of $4.75 per gallon (EIA) to the low of around $2.00 in mid-March 2009. We are now back up to $2.60 per gallon - a 30% increase without a change in fundamentals.
These diesel prices followed crude prices pretty well as did gasoline prices, but the premium paid for diesel versus gasoline has disappeared for now. Crude has recently doubled with the same fundamental issue.
My college classes in energy taught me some fundamentals - including the law of supply and demand. Another thing everyone watches is the change in energy costs versus what the consumer can spend for their daily living. Crude / fuel price increases historically lead us into recessions.
While few are talking much about it, we agree with others that speculators are again impacting the upward price of crude oil. Bill Graves CEO of American Trucking Associations has recently again called on Congress today to increase the transparency of futures pricing and impose reasonable aggregate position limits on energy commodities.
In addressing fundamentals, ATA Vice President and Chief Economist
The warning bell we are sounding is that our requests for addressing increased fuel costs are accelerating again. From a freight planners standpoint, this acts like a tax again on consumers that will dampen the economic recovery. We are again heading off of the GDP indexed crude oil price curve.
From a truckers-standpoint, this gets us having to invoice an additional $0.10 per mile to shippers in the last quarter. While surcharges are well accepted these days, it’s still not fun to explain - and we must recall that we are still in a soft freight market. Then there are the State / Federal Fuel Taxes being implemented and to come.
The other issues that remain include increased costs of the new equipment and lack of financing for those negatively affected by rising costs. Then there are all of other “taxing” issues that are coming from DC and States that we won’t cover here.
The bottom line is we gotta keep our eyes on the basic costs (meaning fuel) for us in business and on the personal side - again!
