National diesel fuel prices for the week ending March 23 were $5.375 per gallon, according to the U.S. Energy Information Administration—up nearly $1.81 (51%) from a year ago.
The cost of a gallon of diesel fuel has been above $5 for each of the last two weeks. The national average first crested $5 per gallon almost exactly four years ago, just a couple of weeks after the Russian-led invasion of Ukraine, and spent 32 of the next 38 weeks above $5.
"Unless there is a quick resolution to hostilities that allows vessels to transit the Strait of Hormuz, national diesel prices are likely to surpass their mid-2022 high-water mark of $5.810 per gallon within three weeks," forecast Jason Miller, professor of supply chain management at the Eli Broad College of Business at Michigan State University.
The recent run-up in diesel costs implies a $0.36 per mile increase in fuel surcharges.
That was then
The Russian invasion of Ukraine, while a relevant historical reference, might not be the best predictor of future outcomes, contended FTR Vice President of Trucking Avery Vise.
"The spot market is strengthening, not weakening," Vise said. "Through the first three weeks of this disruption, spot rates have risen sharply. That didn’t happen four years ago."
The truck freight market had begun to cool—and cool rather rapidly—by early 2022, but larger carriers continued hiring drivers, shifting most of the capacity lost due to the failure of weak carriers immediately to larger truckload carriers.
"Trucking companies are not in the same position to absorb drivers displaced by carriers folding due to escalating diesel prices as they were four years ago," Vise added. "Carriers have not been in a hiring mode, and that takes time—assuming they are even inclined to get into that mindset given the prolonged freight rate recession and continued uncertainty over the war, tariffs, etc."
Vise added that in the near term at least, he expects any capacity lost due to fuel costs to be idled, not shifted to larger carriers, "putting even more pressure on freight rates—the opposite of what happened in 2022."
This is now
After being flat last week and dropping for the four weeks prior, linehaul rates have increased by $0.02/mile already this week, noted DAT Principal Analyst Dean Croke. "This means carriers are being more successful at covering the higher costs of diesel; not all of it, but a bigger percentage."
Over-the-road retail diesel costs have been relatively stable for the last week, averaging $5.44/gal at Pilot truck stops, the largest seller of OTR diesel. So, with rates up slightly and diesel stable, Croke said smaller fleets and operators will likely be "treading water."
"So long as linehaul rates keep rising and diesel remains stable, owner-operators and small fleets should be able to get through this," he said.
Contract rates for van freight ended February up about 6 cents per mile since the end of last year, according to DAT, and spot rates are up about a dime. Van linehaul contract rates averaged almost $3.15 per mile when diesel prices were at their highest in 2022—about 63 cents higher than they are right now. That includes a 66-cent fuel surcharge over the last 10 months of 2022.
While the rise in spot rates does not appear to be fully offsetting higher fuel costs, it’s probably coming close enough to keep most operations afloat, Vise added. The issue for carriers operating on the contract side of the market is the float between when the fuel is purchased and when the shipper pays the freight bill and fuel surcharge. "That cash crunch, too, probably will bring down some carriers," he added.
