Transportation news: Flucuating oil and gas prices force shippers to plan for the future

While diesel prices appear to be in check to a large degree for the time being, many industry observers maintain there is no real rhyme and reason in terms of fluctuating fuel prices.

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When it comes to the current state of diesel prices, the only thing anyone knows with any certainty is that nobody knows anything at all.

Consider this: the current price per gallon for diesel fuel, according to the Department of Energy’s Energy Information Administration is $2.956 per gallon. This price is 0.5 cents less than last week and is the sixth time diesel prices have been down in the last seven weeks. Diesel prices have not been north of $3 per gallon since late April, according to EIA data.

And while diesel prices remain under $3 per gallon, prices are currently nearly 35 cents higher than a year ago at this time, when the economy was still largely sputtering and demand was down. The high point for the year was $3.127 during the week of May 10, and prices are down slightly more than 17 cents per gallon since then.

Current diesel prices appear to be in line with the EIA’s most recent Short-Term Energy Outlook, which is calling for 2010 average diesel prices to come in at $2.96 per gallon in 2010 and $3.11 in 2011.

The EIA is also calling for 2010 crude oil prices to be average $78.75 per barrel in 2010, slightly higher than the current price of $74.74, with 2011 prices currently forecasted at $82.50. In April crude hit nearly $87 per barrel, marking its highest price in 17 nearly 20 months.

While diesel prices appear to be in check to a large degree for the time being, many industry observers maintain there is no real rhyme and reason in terms of fluctuating fuel prices.

“There has never been a period of volatility in fuel prices like there has been in the last year,” said Mike Regan, president of TranzAct Technologies and a frequent blogger for LM. “That means the fact that prices are down is no indication that the prices are going to stay down or rise sharply.”

With such uncertainty, Regan said it is imperative for shippers to develop fuel budgets for different potential scenarios that have the ability to dramatically alter planning such as a Middle East conflict or China’s mild economic downturn.

And Derek Leathers, Chief Operating Officer of Werner Enterprises, said that even with the ongoing uncertainty regarding oil and diesel prices, Werner is planning for “fairly stable” pump prices for the rest of this year.

“We don’t see $4.75 prices per gallon [like in 2008] returning between now and the end of the year,” said Leathers. “At the same time, though, we don’t know where prices are going to go so whatever we can do to be more efficient and burn less fuel is a better approach.” 

As oil prices ride the wave of fluctuating prices, a recent Logistics Management reader survey of about 150 logistics, supply chain, and transportation managers found interesting disparities regarding how much shippers’ average fuel surcharges were above their base rates.

The survey revealed that 20 percent felt average fuel surcharges were 6-10 percent above base rates as did another 20 percent say average fuel surcharges were 11-15 percent above base rates. 19 percent said average fuel surcharges were in the 0-5 percent range above base rates, with 17 percent of respondents at 16-20 percent and 9 percent saying average fuel surcharges were 21 percent above base rates.

LTL shippers overall said their average percentage fuel surcharge was 13.83 percent, and truckload shippers said truckload shippers said their average was 17.05 percent. 84 percent of respondents expect to pay higher fuel surcharges in the coming months. And if prices rise in the future 65 percent of respondents plan to raise or adjust their freight budgets to cover higher than expected prices.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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