ATA addresses fuel prices and ULSD concerns

Jeff Berman, Senior Editor -- Logistics Management, 4/24/2006

WASHINGTON—As gasoline and oil prices continue to reach record levels, coupled with a June 1 requirement that 80 percent of the refinery output of on-road diesel fuel must be ultra low sulfur diesel fuel (ULSD), it’s not a stretch to say that fuel, fuel prices and fuel availability are a major concern, American Trucking Associations (ATA) senior vice president Tim Lynch said in a media conference call.

With gasoline and oil prices reaching the highest prices in history, fuel expenditures, said Lynch, are the second highest expense for the trucking industry, with labor expenses being the biggest expense, said Lynch.

While the first stages of the ULSD requirements looming, Lynch said the trucking industry has “serious concerns” about ULSD fuel availability, contamination, transport and volatility, and he added that the ATA is working with various regulatory agencies to address these issues. He noted that the ATA is encouraging Congress to help drive an initiative to increase refining capacities that were severely impacted by Hurricane Katrina last year.

And because of limited output from refineries, rising prices and the ULSD mandate, he said the trucking industry will be asking the following question come summer and late fall: How high will diesel prices increase as the heavy freight season approaches in the second half of this year?

“There are serious concerns about how ULSD will exacerbate price pressure on diesel fuel,” said Richard Moskowitz, ATA assistant general counsel and regulatory counsel. “ULSD costs five more cents per gallon to produce and distribute and has a one percent lower energy value than today’s diesel fuel because it can easily be contaminated with sulphur. If ULSD is problematic, we will probably see continued price spikes.”

As for the sustained price spikes on the diesel side, ATA chief economist Bob Costello said that while the Energy Information Administration recently predicted the average price per gallon of diesel fuel to be around $2.60 for the rest of the year, it will likely end up being higher.

“The price of oil is more than 50 percent the price of diesel and will keep driving up prices going forward,” said Costello. “And one thing we have seen in recent weeks is operations capacity in refineries is falling. Instead of operating at 90 percent capacity, we are at 85 and distallate production is off. Those are the main drivers.”