Trucking companies continue to ride the rising tides of an expanding economy and surging freight demand. While the good times for carriers continue to roll, higher on-highway diesel fuel prices are squeezing profit margins.
Although economic expansion has occurred continuously in recent years, since the onset of the pandemic, transportation rates have risen wildly. In this environment, carriers have control in the market, setting rate levels and choosing the most profitable lanes. In turn, they are generating higher revenues, but rapidly rising fuel costs threaten that income.
Fuel surcharges are based on the U.S. Energy Information Administration (EIA) weekly reporting of fuel costs. The rates are updated and released weekly, and major carriers, like UPS and FedEx, adjust their fuel surcharges based on the rates reported for the preceding week. The most recent average diesel increase chart from the EIA is below.
Freight management parties need to know a few things about how changes within the weekly on-highway diesel prices influence landed freight spend.
Could Diesel Prices Create A Headwind For Carrier Profits?
Sustainability Is Still Top of Mind and Impacts On-highway Fuel Costs
Sustainability has been a staple of global trade and freight management. In 2016, the International Maritime Organization (IMO), the United Nations regulatory authority for international shipping, issued a mandate that required ocean carriers to adopt measures to limit sulfur emissions. The prior sulfur cap was set at 3.5%, and the mandate sought to lower that limit to 0.5% by January 2020.
When the IMO issued the mandate in 2016, most of the world’s large cargo ships used bunker fuel, which is basically a high sulfur fuel left at the bottom of the barrel at refineries. What’s driving this mandate is that sulfur oxides produced when burning this fuel are harmful to human health.They can lead to respiratory problems and even lung disease. The sulfur emissions can also negatively impact the environment in the form of acid rain.
Now, companies have managed to implement exhaust gas cleaning systems, according to the IMO. And many ocean shipping companies have switched from traditional bunker fuel to diesel, but that switch comes at the impact of higher demand for diesel on a global scale. That demand inherently impacts the cost of on-highway diesel.
How Will This Affect Trucking Companies And Shippers
The Big Picture: Optimize & Re-Optimize Freight Management
MercuryGate can help achieve those goals across all forms of transportation, and in doing so, we help prepare both shippers and carriers to manage rising fuel costs now and in the future. Request a MercuryGate demo to see the platform in action today.