Concerns over diesel are not going away anytime soon

If you are a shipper hoping that diesel prices will start heading down after being above the $4 per gallon mark over the last several weeks, you may need to temper your expectations.

The latest reason for this sentiment comes from the United States Department of Energy’s Energy Information Administration (EIA) in its recently updated Short-Term Energy Outlook, which is updated monthly.

According to the new EIA data, the price per gallon of diesel is expected to average $4.15 in 2012, compared to $3.84 in 2011, with 2013 expected to be slightly “down” at $4.11.

The numbers for crude oil are equally ominous, it seems. The average price per barrel in 2012 is expected to be $105.72 up from $94.86 in 2011, and 2013 is three cents higher at $105.75.

Shades of 2008, anyone? OK, well the financial markets are not crashing and job growth is not nearly as anemic, but it certainly is a warning sign to say the least.

Every week, we report on diesel prices based on EIA data, and it is fair to day that things are trending up, which is less than good news for shippers. And we have talked to shippers about what steps they are talking to counter the increases so the pain at the pump is less severe—every little bit helps with this, it is fair to say.

Even before prices started trending up over the $4 per gallon mark nearly two months ago, shippers have maintained that they are forecasting for steady fuel increases in their supply chain and transportation budgets should diesel prices continue to remain at or near this level.

Shippers continue to take steps to minimize the impact of fluctuating fuel costs. Over the years, they have maintained that this is imperative as higher diesel prices have the potential to hinder growth and increase operating costs, which will, in turn, force them to raise rates and offset the increased prices to consumers.

A recent LM survey of 345 shippers found that 65 percent of them—or nearly 220—expect to pay higher fuel surcharges in the coming months, with 74 percent—or about 250—planning on raising or adjusting freight budgets to cover higher-than-budgeted fuel prices.

But adjusting budgets is only part of the solution when it comes to dealing—and living—with fuel price fluctuation, according to shippers.

This may require shippers hedging diesel on their own and committing to a certain price paid to a certain rate at which point it is frozen at that rate.

Some other feedback involved focusing more on utilization and efficiency by doing things like driving empty miles out of transportation networks.
These high prices may be here to stay for a while and it is not an enviable situation for shippers. What are you doing to stop the bleeding? Send me an e-mail at [email protected] and let me know.