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The surge in diesel and gasoline prices this year is stoking inflation and affecting many businesses. The distillate fuel crunch and high prices globally and in the United States are eating into the margins of road freight transport operators, while gasoline prices at a seven-year-high are slamming the drivers at rideshare services and adding surcharges for customers.
The highest oil and gasoline prices since 2014 and the highest diesel prices in the U.S. on record struck in March and are raising operating expenses for trucking companies hauling goods across the country.
Bloodbath On The Way?
The best trucking market in history was last year, according to Craig Fuller, CEO of freight industry market data provider FreightWaves.
In 2021, pent-up demand after the pandemic and the ability of truckers to raise spot rates made a lot of money for the existing large businesses. But the average trucking company struggled to make money, Fuller wrote in a blog post last week, warning that if demand falls back to pre-COVID levels, rates will collapse. At the same time, uncertainty over the near-term oil prices could mean that diesel prices may not fall back significantly, and another "bloodbath" for the American trucking market could be on the way as signs have started to emerge that consumer demand is softening, FreightWaves' Fuller wrote last month.
One notable shift in consumption is that consumer spending has now started to shift away from physical goods.
"The COVID surge is largely behind us and people are starting to shift their spending away from physical goods to travel and entertainment, which will take a much larger percentage of disposable spending than we have seen over the past two years," Fuller said.
Comments from the transportation industry that FreightWaves has collected also point to a material slowdown in the trucking business.
A large industry supplier said in March, "In an internal memo that I sent to the team last week about weakening demand and what that means for the industry, my closing line was 'The Elmer Fudd steroid-induced demand juicer is over.'"
Fuller's take on an imminent recession in the road freight business at the end of March was, "With falling spot rates, declining volumes, surging fuel prices and inflation across the board, it will get ugly, very quickly for many of these operators. Back in 2019, FreightWaves reporters wrote about trucking bankruptcies almost every day. I expect this will become reality for us once again."
Many inexperienced trucking startups bought at the top of the market and are now struggling, according to FreightWaves.
Fuel Costs Surge
On top of the signals of a slowdown in demand for physical goods, truckers have to contend with soaring operating expenses, such as fuel costs, maintenance, and insurance. The price of fuel is one of the largest variable operating expenses in the trucking industry.
In 2019, retail diesel prices ranged between $2.97 and $3.11 per gallon. For the most part, retail diesel prices hardly moved in 2019, and "For most carriers operating in 2019, fuel was incredibly stable and was largely an afterthought," FreightWaves' Fuller notes. However, in early April 2022, the retail diesel price was $5.10 per gallon, which means a $0.30 increase per mile for fuel costs that will significantly impact the cash flows of carriers.
Retail diesel prices are off the mid-March record high of $5.25 a gallon, but they are still $5.0763 a gallon, much higher than $3.613/gal at the start of this year and $4.104 per gallon in the early days of the Russian invasion of Ukraine. The most recent trend is a drop in diesel futures and prices, but they are still much higher than last year and early this year, adding more costs to the truckers' operating expenses.
Rideshare Surcharges As Gasoline Prices Spike
It's not only the road freight industry that is feeling the heat of soaring fuel prices. Rideshare services are also under pressure to compensate their drivers as U.S. gasoline prices jumped to the highest since 2014, and the national average stays above $4 per gallon, although it's down to $4.114 from $4.331 per gallon a month ago.
To help drivers, Uber and Lyft introduced in March temporary fuel surcharges for consumers. Uber customers are paying a surcharge of either $0.45 or $0.55 on each Uber trip, and either $0.35 or $0.45 on each Uber Eats order, depending on their location—with 100 percent of that money going directly to workers' pockets. This will be temporary for at least 60 days, Uber said in the middle of March. Lyft, for its part, added a $0.55 fuel surcharge to each ride that'll go directly from riders to drivers, also for at least 60 days.
Still, drivers at rideshare services, as well as local contractors for FedEx Ground delivery trucks, want more help amid surging gasoline and diesel prices.
"We are in a very serious situation that is going to require immediate action to save these businesses—your business partners," FedEx Ground contractors say in an online petition cited by The Wall Street Journal.
"The reality of the current climate is that many [contractors] are on the verge of financial collapse."
By Tsvetana Paraskova for Oilprice.com
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