A few decades ago, the freight and transportation industry benefited from low diesel rates and widespread availability. However, in this past decade, the impact of diesel rates caused many harmful effects on transportation companies.
This year, diesel rates hit record highs. According to AAA, the national average for a gallon of diesel reached $5.81 in late June. Due to higher prices, truckers are experiencing the pain of filling up their tank firsthand. Inflation is also rising in the United States, at 8.3% more than last year. Since diesel costs are high, goods’ prices will stay high for the foreseeable future. Also, shippers will see higher freight rates and fuel surcharges due to the increasing fees.
Most long-haul trucks and freight trains use diesel to travel, so diesel is a crucial source for many Americans in the freight transportation industry. Diesel is used for vehicles when gasoline cannot be used, so it’s heavy enough to haul large amounts of freight and payloads.
The Cause of High Diesel Rates
As many people have been following in the news, the invasion of Ukraine continues to affect gas and oil prices. Many nations didn’t want the Russian invasion of Ukraine, tried to unify the countries, and applied sanctions on Russia. Russia is the third-largest oil producer in the world, and because of the invasion, many other countries take the hit by receiving higher fuel prices. The attack influences different modes of transportation, but the one most at risk is over-the-road transportation due to how dependent the country is on it. Mac Pinkerton, the President of North American Surface Transportation for C.H. Robinson, which provides supply chain services to trucking companies and others, shared his thoughts on the diesel and freight rates. “Not only is historical it a historical level, but it’s increased at a historic pace. We have never experienced anything like this before,” said Pinkerton.
The Impacts of Diesel Rates on Transportation
In the trucking industry, fuel surcharges help balance the fluctuations that come with the cost of fuel. Trucking companies (or third parties) charge this fee, which gets added to the cost of operations. The fuel surcharge depends on the fuel itself, but the taxes increase more once the fuel price exceeds $6.00. With this, the tariff rises 0.50% for every $0.5 increase per gallon. Fuel surcharges also account for the average cost of transporting goods.
Usage Rate is Slowing Down
The rising diesel rates take a toll on the transportation industry and many other industries. When the transportation world faces rising diesel rates, they typically focus on driving frequency to save money. The price usually affects how often the truck drivers go out on the road, so they aren’t spending all their money on services and not other aspects of the company.
Another issue to worry about with the rise in diesel rates is trucks breaking down while on the road. When a truck breaks down, mechanics working will still run and help but find trouble financially to meet the costs of the roadside assistance calls coming in.
Rise in Inflation
Higher diesel rates impact the economy, technology, politics, and the environment. Along with the rising diesel rates, shipping products also get their prices bumped up to meet the demand. With every price that goes up, so does everything else in the industry to all stay on the same page.
Transportation Freight Increasing Costs
Since diesel prices are rising, carriers must increase their prices. If the prices don’t rise, carriers will face losses with their company. The rising diesel costs affect the entire industry more broadly than people think. The other aspects that must change include an increased cost for the freight carrier to transport goods and charging the shipper fuel surcharges to transport items to keep up with the higher prices. Whenever rising costs come into play, every part of the transportation industry must change to adapt.
Impact of Diesel Rates on Carrier Rates
Higher diesel rates cause many problems for carrier rates, and it’s not as simple as some may think.
To break it down, a carrier’s fuel costs get covered by linked fuel surcharges and the usual price of diesel. Trucking companies pay much more per gallon but also generate less profit from fuel surcharges. Fuel rates fluctuate, so the cost does as well. In addition, full truckload carriers typically assess fuel surcharges on a per-mile basis.
Freight Rates with PLS Logistics
At PLS Logistics, we understand that the rising diesel rates can be frustrating for many people. We want to work with you to get the best options possible to overcome this challenge. We work with over 55,000 carriers and strive for efficiency and reliability in each one. Working with us also ensures you time to focus on generating revenue, and we handle the rest for you. Get a free quote with us today to start your shipment!