Skyrocketing Diesel Prices Forcing Some Companies to Transition Fleets, Raise Consumer Prices
December 10, 2007
• by Staff
--- Sky-high diesel prices are prompting some companies to reevaluate their fleets and to consider raising consumer prices, according to a report in today's Los Angeles Times.
Since August, diesel prices have risen 20 percent. In November, the average price of diesel was $3.40 a gallon, an inflation-adjusted record in the U.S. As a result, prices on a variety of consumer goods are expected to go up in price in the coming months.
"Almost everything we use gets moved by a truck, a train or a ship, and they all use diesel fuel," John Husing, a California economist and cargo movement expert, told the Los Angeles Times. "You raise the price of diesel fuel, and you raise the price of everything."
Diesel engines move 94 percent of all freight in the U.S. and 95 percent of all heavy construction machinery.
Since September, "our fuel costs have increased more than 8 percent, or $85 million," Alan B. Graf Jr., FedEx CFO, said in November after the company opted to reduce its earnings projections. "While we have dynamic fuel surcharges in place, they cannot keep pace in the short term with rapidly rising fuel prices."
One Los Angeles company, Downtown Diversion, is taking steps to convert its fleet away from diesel. The company collects and recycles materials from building construction and demolition sites as well as film sets. Downtown Diversion currently has a fleet of 40 trucks, seven tractors called front-end loaders, three excavators and one horizontal wood grinder, all running on diesel. CEO Mike Hammer says the company plans to begin replacing all of its equipment with machines that can run on electricity or cleaner-burning alternative fuels. He's convinced diesel prices will stay high, so such a dramatic shift is necessary in the long term. "It's going to cost us millions of dollars," Hammer told the Times.
Bob Costello, chief economist for the American Trucking Association, told the Times that 2007 has been the worst year for small trucking company bankruptcies since the last recession in 2001. The trucking industry will spend more than $110 billion on diesel fuel this year --- up from $107 billion in 2006 and more than double the amount spent four years ago.
Originally posted on Fleet Financials