The continuing rising price of diesel fuel is having a major impact on the economy and the supply chain as independent truckers are finding it more expensive to haul freight than they are making on the load.
Pennsylvania has the ninth highest prices in the nation due to taxes, creating a greater impact locally on the availability of goods, according to Rebecca Oyler, president and CEO of the Pennsylvania Motor Truck Association.
“It’s a matter of math,” she said. “If you can’t make money, you’re not going to haul freight. Small companies are suffering the most.”
The price of diesel in Pennsylvania as of May 25 is $6.302 per gallon, a historic high, according to AAA. A year ago, diesel was selling for $3.46 per gallon.
“We are already seeing and continue to see the impact of the rising cost of crude oil on consumer goods as measured by the Consumer Price Index (CPI),” said Dr. John Kooti, dean of the John L. Grove College of Business, Shippensburg University. “Although large companies may be able to absorb the cost and eventually pass it to consumers, independent truckers may not have the ability to do so, thus, might well lead to bankruptcy among some independent truckers.”
Oyler said most companies can get fuel surcharges based on the past week’s prices, which they can add to their standard rates, but they are not getting the full rate because prices are rising almost daily.
“Large companies can absorb the increased costs,” she said. “Most companies don’t get the reimbursement for 30 days or more so smaller companies can’t manage the increase.”
“Generally speaking, the volatility of fuel prices increases uncertainty and decreases the ability for businesses to plan operations,” said Dr. Ian Langella, professor of Supply Chain Management and chair of Finance and Supply Chain Management Department at the John L. Grove College of Business, Shippensburg University.
In some cases, fuel surcharges are included in contracts and can result in basically a sharing of the risk between shipper and carrier, he said.
“Independent truckers do not have the same bargaining power as large companies, so it depends on the financial strength of independent truckers” whether they stay in business, Kooti said.
“I don’t see a short-term solution,” said Oyler. “This comes down to supply and demand.”
Olyer said the war in Ukraine is reducing supply of crude oil, but demand is still up because consumers are still spending. “It’s a hard issue to fix and it won’t be quick,” she said.
While consumers are still spending, Kooti said consumers are already being affected by the rising cost of goods and services. “Last month our inflation rate was up 8.3% compared to last year, the highest in decades” he said.
Langella added, “Consumers are also adversely impacted by the supply chain disruptions and shortages. While most of our demand for goods and services has been fulfilled as it was in the past, there are more examples of product shortages that were almost unheard of before the pandemic.”
Trucking companies are not the only ones being affected. Industries like lawn care services and contractors are feeling the pinch as well. “If there are no surcharges in their contracts, they are really going to suffer,” Oyler said.
“Most lawn services have annual contracts with fixed rates, so it is difficult to pass the rising fuel to consumers in the short term,” Kooti said. “Any future contract will reflect the forecasted cost of fuel, thus eventually will be passed to consumers. It all depends on how long the rising oil prices continue.”
There may be some ways to renegotiate based on the contract. Langella said. “After all, small businesses will find it incredibly difficult to absorb this and may seek to share the risk with customers through a post contractual negotiation.”
Oyler said the country needs to increase the supply of domestic energy as a long-term solution. “We need to think strategically about how to make that happen.”
The bottom line, she said, is the general public will pay the increased costs. “When you think about it, the supply chain is greatly affected because everything we use is transported and those vehicles use diesel,” she said.
Even when trucks are parked or companies streamline loads or haul less, there is an increased cost to transport goods, she said. “In the end, it comes back to the consumer.”
Oyler said she doesn’t see an end in sight, noting as summer approaches, demand for fuel goes up. “Hurricane season will affect the availability as well,” she said.