The national average price of diesel shot up by 16 cents now sitting at a record high of $5.70 a gallon according to the Energy Information Administration data released on June 6th. Looking back to a year ago, a gallon of diesel now costs $2.43 more per gallon than it did during this time in 2021.

We are seeing increases across the US, straining the operations of trucking companies and budgets of businesses that need to ship goods. This is causing costs to continue rising in the supply chain and inflation to continue increasing from anything from housing construction to deliveries of consumer goods. When fuel prices are higher, consumer goods costs are higher.

Diesel costs are going up faster than most can keep up with

Trucking companies generally can cover rising diesel prices through fuel surcharges that are built into contracts. But the thousands of smaller fleets and independent owner-operators that make up the bulk of the highly fragmented truck market have a harder time passing along the added expenses. The rising operating costs are hitting those operators just as base shipping prices on trucking’s spot markets are dropping on wavering freight demand. Changes are continuously happening with these prices, but it is essential for carriers and shippers to understand the direct costs to the shipping operation and that rates are higher to accommodate fuel surcharges.

In the 10 regions in EIA’s weekly survey, 8 of those regions experienced a rise in diesel costs. The highest increases were in the West Coast less California and California, at 32.9 cents and 28.9 cents, respectively. It fell 3.1 cents in New England and 2.9 cents in the Central Atlantic. Price increases are affecting the nation and we are going to start seeing the repercussions of these rising costs.

The possible consequences of higher oil prices to the overall economy

Independent Operators and Smaller Fleets have less leverage to negotiate freight rates with shippers. Many are finding themselves diving into margins to support operations and keep the wheels turning (literally). The increases are adding hundreds of dollars per week to the operating costs of each truck and carriers are scrambling to keep up. “Smaller operators are adjusting operations to save on fuel, taking steps such as limiting idling and cutting speed. Some are even turning away longer-haul loads to focus on shorter runs to keep their expenses down,” said Avery Vise, a trucking analyst at FTR Transportation Intelligence.

Cost of Inflation

Oil makes up 3% of the global GDP. So as a result, if 3% of global GDP is twice as expensive tomorrow, it is evident there will be an impact on inflation. Oil is used every day and is a necessity for many products to be created and transported. With the rising costs, it results in higher prices for all the goods and services we use.

What are the costs for consumers?

The primary factors impacting fuel prices are global crude oil cost (49%), refining costs (28%), distribution and marketing costs (12%), and federal & state taxes (11%), which are reflected in the wholesale costs that gasoline retailers pay to distributors. In addition to these factors, retail stations must address local factors that can impact retail fuel prices such as store types (branded or unbranded), store location & local competition, fuel delivery method, length of existing contracts with suppliers, volumes purchased, and specific store considerations (e.g., labor costs, real estate costs, electricity, credit card fees, equipment cost & maintenance, etc.).

Understanding trucking rates

As freight becomes more expensive to transport as fuel prices rise, carriers and brokers are forced to raise their rates. These trucking rates are broken up into two categories:

Linehaul Rate: This rate represents the carrier’s shipping costs and is calculated on a cost-per-mile basis.
Fuel Surcharge: This rate accounts for the changes in fuel prices from the time the order is placed to its delivery. When fuel prices are higher = shippers face higher fuel surcharges.

The increases in rates affect all parties: carriers, freight brokers, and shippers. Shippers have the upper hand in the deal by having the ability to search the market for a lower price when they are unsatisfied with the rate to ship. This causes many owner-operators and smaller freight brokers to be unable to negotiate rates and can sometimes leave a smaller carrier with limited working capital in the interim. Working with a freight broker that has strong relationships with their shippers and carriers creates the opportunity to negotiate rates and come to a common ground for all parties to be successful.

How to be more efficient

Use Gas Apps to Find Cheap Fuel Near You: Gas Buddy - a great resource for finding nearby gas stations and real-time prices of their gas. You can compare while on the road to save as much money as possible.
When I am behind the wheel, how can I get more miles per gallon? Accelerate smoothly. Jackrabbit starts consume twice the fuel as gradual starts. Also, pace your driving. Staying at a constant speed is better than continuously speeding up and slowing down. Slow down. The faster you drive, the more gasoline your car uses. Driving at 65 miles per hour instead of 55 miles per hour reduces fuel economy by about two miles per gallon.
Besides changing driving habits, what can I do to improve vehicle fuel efficiency? Maintain your vehicle. Have your car tuned regularly, keep air filters clean, and make sure the tires are properly inflated. An engine tune-up can improve car fuel economy by an average of one mile per gallon; under-inflated tires can reduce it by that amount. Using less of your air conditioner can improve fuel economy by as much as two miles per gallon, but today’s air conditioners create less drag on your engine than driving with the windows down. Also, you should clean out your car—not only will it make it look nicer but reducing weight can increase fuel efficiency.

Sparrow Logistics is here to help

With our team’s 20+ years of experience in the transportation and logistics industry, you can rest assured that we have the expertise to navigate these unpredictable times. We have strong relationships with our clients and carriers allowing us to negotiate with all parties to ensure all needs are met! We understand you have a business to run and are looking for the best partner who can be the expert in freight shipping.

Sparrow Logistics’ foundation is built on honesty, respect, positivity, and the integrity to follow through on our promises. These values are consistently embodied in our leadership and extended to every person who comes alongside us, including our clients, carriers, and employees.  

Tell us what you need, and we’ll take care of the rest! We are a brokerage that you can always count on. You can trust that we’ll give you straight answers backed with experience and do everything in our power to help you when needed. Ready to partner together? Contact us today!

Soaring fuel prices are straining US Truck drivers and Shipping Operations