Trucking companies already coping with higher fuel costs are bracing for further increases in prices for diesel as Russia’s invasion of Ukraine roils energy markets, sending crude oil prices surging above $100 a barrel.
Average diesel prices across the U.S. have jumped more than 44 cents a gallon since the start of the year, according to the U.S. Energy Information Administration, and the national average price of $4.055 a gallon for the week ended Feb. 21 was the highest level since March 2013.
The latest increases came before Russia’s attack on Ukraine disrupted oil flows around the world as the energy industry moved to pre-empt possible U.S. restrictions on Russian exports. Shipping companies this week refused to load tankers with the main grade of Russia crude, traders and shipping executives said, triggering a sharp run-up in crude prices before a pullback on Friday.
Smaller trucking companies and independent drivers face the greatest exposure to the volatility, industry experts said, because they can’t hedge their fuel purchases the way larger carriers can. Smaller operators also generally buy diesel at retail rates at the pump rather than through volume discounts that flow to larger operators.
“The large carriers are typically very sophisticated and make sure that they’re applying the fuel surcharge consistently and collecting it,” said Todd Fowler, an equity research analyst at KeyBanc Capital Markets who covers trucking. A prolonged run-up in fuel prices, he said, could trigger “some attrition among the smaller carriers, given some of the challenges in navigating higher fuel costs.”
Fuel is typically a trucking company’s second-largest operating expense, after labor, and can make up more than 10% of a carrier’s costs.
Trucking companies pass along the rising costs to customers with fuel surcharges that seek to minimize the impact of price fluctuations. But there can be a lag between the time prices rise, surcharges are adjusted and customers begin paying the higher cost, industry experts said, which can pinch the finances of smaller carriers.
Smaller operators have proliferated in recent years and are likely to face financial strains if they can’t get paid quickly enough to cover the higher cost of fuel, said Avery Vise, a vice president at research firm FTR Transportation Intelligence. January saw the highest number of businesses revoking their operating authority since Hurricane Katrina pushed up gas prices in 2005, he said.
DAT Solutions LLC, which matches shipper loads to available trucks, said the average fuel surcharge for truckload carriers reached 41 cents per mile in January, up 17 cents from the year before, and was at 45 cents this month.
The bigger threat that rising energy prices pose to the trucking sector may be if higher costs for gasoline hit the broader U.S. economy and dampen consumer spending.
More household spending on gasoline could undercut spending on retail goods, which “could have an overall effect on consumer confidence and, ultimately, consumption,” said
Chief Financial Officer
“So certainly there could be a negative effect down the line, depending on how long we see these types of escalated costs.”
Write to Lydia O’Neal at [email protected]
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