Weekly Chart: Diesel Truck Stop Price Per Gallon, Department of Energy Diesel Average Weekly Price, Silpur Diesel Rack Price Low, Wholesale Fuel Retail – USA Sonar: DTS.USA, DOE.USA, ULSDR.USA, FUELS.USA
Wholesale prices (ULSDR, light green) rose more than 30% last week, while retail prices (DTS daily in white and DOE weekly in yellow) rose more than 14%. The pace of these price changes may be more impressive than the absolute price, which remained at historic highs until Friday. While shippers will undoubtedly feel the pain of rising transportation costs, shippers will also face pressure from rising real wholesale, or rack, prices.
Fuel typically makes up about 20-25% of the total cost of trucking, although this portion can vary depending on how expensive or cheap fuel is. From a carrier’s perspective, a sharp increase in fuel prices can hurt budgets. For carriers, fuel is a critical component of operating costs that must be proactively managed.
The latest disruption in the oil market is the most significant since the Russian invasion of Ukraine in early 2022. It is also the first major disruption since OPEC’s voluntary supply cuts in the summer of 2023. This event proved to be relatively short-lived, as prices fell after falling.
For most trucks, fuel is a major transportation cost, usually achieved through a fuel surcharge linked to the weekly average diesel price published by the DOE every Monday. Most fuel surcharge tables assume a fuel efficiency of 6.5 to 7 miles per gallon. There is usually a certain amount of fuel included in the base transportation price, which typically covers the cost of fuel at around $1.00 to $1.50 per gallon. As a result, most surcharge tables start around this level and gradually increase diesel prices.
Many large fleets have purchase agreements with fuel suppliers that allow them to purchase fuel at or slightly above wholesale prices. While this may be an arbitrage opportunity on the surface, many carriers use this release to offer competitive pricing when the market is balanced and capacity is relatively tight – as has largely been the case over the past three years.
When wholesale prices rise faster than average retail prices, it compresses the buffer created by the spread between retail and wholesale diesel—labeled FUELS in orange on the chart. The smaller this spread, the less flexible carriers must pass fuel costs efficiently. When prices ease, the opposite happens. Recently, this spread has decreased from about $1.02 to $0.68 per gallon.
The speed of change is especially important, as pricing teams typically set prices based on historical data. Most contract prices are likely to be adjusted to a spread closer to $1.20 per gallon. This means that even if prices are increased through the fuel surcharge mechanism, they may not improve profitability and in fact reduce it.
Spot prices tell a different story. Many small fleets and owner-operators do not have the volume necessary to secure fuel purchase agreements. Their costs are more closely tied to retail fuel prices, which are passed on to consumers directly and often quickly.
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Meanwhile, the shipping market appears to be headed for a tougher environment after a strong holiday season and disruption caused by Winter Storm Fern. Spot prices (NTI) have been reluctant to decline after a storm destroyed the transportation network in late January. Although it is difficult to separate the direct impact of oil prices from underlying market drivers, higher oil prices appear to have contributed to the recent rise in spot prices. As carriers continue to face higher oil prices, these pressures continue.
The shipping industry is no stranger to oil price volatility, but the timing and magnitude of the current spike present potential challenges for both shippers and shippers. For shippers, the concern is straightforward: high transportation costs. For carriers, the impact is critical, as margin pressure and operating costs must be balanced against changing market rates.
There are also broader economic considerations. Rising energy costs can eventually suppress demand if they rise too quickly. Some increase in oil prices could support domestic economic activity, as the United States is one of the world’s largest oil producers. However, if prices rise too quickly, the resulting inflation and instability can destroy demand in other parts of the economy. As of last week, conditions have not reached that level, but many economists believe the duration of the conflict will be a key factor in determining how disruptive this latest geopolitical shock will ultimately be to supply chains and the broader economy.
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The Weekly FreightViews chart is a chart selection from Sonar that provides an interesting data point for interpreting the state of freight markets. A chart is selected from thousands of possible charts in SONAR to help participants visualize the freight market in real time. Each week Market Expert will post a chart, with commentary, live on the front page. After that, the weekly chart will be archived on FreightWaves.com for future reference.
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