The national average price of diesel reached a high of more than $5 per gallon in the first quarter of this year, almost doubling in price since the beginning of 2021. The trucking sector is struggling from record high gasoline prices, which might have far-reaching consequences in the future for a lot of companies in the trucking sector.
For carriers, the variable cost of gasoline accounts for 20 to 25 percent of line-haul revenues on average. Currently, diesel accounts for an average of 37 percent of total energy use. If a major increase in operational expenses occurs, it is extremely difficult for smaller carriers to cope unless they are able to get a capital infusion.
With fuel costs at an all-time high right now prices are affecting the trucking industry in 3 major ways.
1. Increased fees for gasoline
Despite the fact that carriers do not recoup the whole cost of fuel increases, those that are aware of and understand their operational expenses have a clear competitive edge. They are able to precisely determine the additional cost of conducting business and factor in fuel surcharges into their rates and pricing structures. When it comes to fuel surcharges, smaller carriers and owner operators that depend more on the spot market to locate cargoes are unable to recuperate as much, if anything, as larger carriers and owner operators do. Due to the growing cost of gasoline, any levelling off – or, even worse, a decrease – in line-haul prices is quite troublesome.
2. Capacity is being reduced
As carriers strive to avoid empty miles in order to preserve fuel, shippers that have freight in rural regions or in places where diesel fuel prices are greater than the national average may see their acceptance rates decline.
Carriers are becoming much more selective about their load (choice), being extremely cautious about running too far from the next load, and as a result, they are becoming more cognizant about pricing their loads into those markets in order to compensate for the repositioning of the assets to another load point.
Additionally, some owner-operators are opting to take a vacation and not carry goods for a few months, or they are being extremely selective about which lanes they want to run or how many miles they want to cover.
Some owner-operators are able to just park their trucks and wait it out, while others are unable to do so. However, since the expense of operating their own vehicle is prohibitively expensive, many will undoubtedly return to driving for a huge fleet.
3. The balance of power in pricing is changing
Shippers have stated that prices have begun to normalize and that their load acceptance rates have increased in recent months. A possible explanation for this might be the consequences of the conflict in Ukraine on the global freight business. Retail sales fell by nearly 4% percent in March, indicating that demand has been dampened. As a result, consumers are not travelling as much or spending as much on services.
As a small fleet operator, gasoline is a major source of frustration; it has increased from 48 cents per mile in operating expenses to 83 cents per mile this week, with a fuel premium of 65 cents, making full cost recovery impossible even with the fuel fee.
What comes next?
Even if gasoline costs are expected to decline, it may take some time. Even while the gradual release of strategic oil reserves may be beneficial, the continued invasion of Ukraine is causing significant uncertainty in the energy and freight markets.
It is the industrial sector that has borne the brunt of the increase in gasoline costs, namely new-to-market owner-operators who acquired used vehicles at all-time high prices. They will have to put their vehicles up for auction. Some may return to their previous jobs as truckload carriers, while others will abandon the sector altogether.
The volatility of the market during the previous couple of years, as well as the effect from high gasoline prices, are expected to provide valuable lessons in the long run, according to market experts.
Carriers have learned that it is much more expensive to operate their vehicles. It is not just the diesel that is increasing in price; they are also spending much more for tires and insurance.
In order to retain drivers, fleets are also increasing their compensation. While fuel prices will ultimately level off, driver salaries and other expenditures will continue to be high, and these costs must be taken into account when estimating rates.