Diesel’s supply crunch may hit CFOs through freight contracts
Diesel prices have eased from last week’s record, though shipping costs are giving finance teams little room to relax.
The U.S. average for on-highway diesel was $6.38 a gallon on Sept. 28, down from $6.53 a week earlier, according to the U.S. Energy Information Administration. Freight rates, meanwhile, remain well above their longer-term seasonal averages.
Chevron CFO Eimear Bonner expressed that she doesn’t expect quick relief when speaking at a Wall Street Journal event Sept. 22. There, she told those in attendance that energy prices are likely to stay elevated until shipping through the Strait of Hormuz becomes more predictable and more refining capacity returns, the former of which has shown some signs of improvement.
Calls for truckers to stop work on Oct. 1 have added noise to an already difficult freight market, too. Right now, the effort is being framed as engineered via social media over an organized industry effort. Major trucking groups say they are not involved in the proposed stoppage, with the spokesperson of one such group dismissing it as “social media chatter at this point in time.”
Some states have begun responding to high diesel prices, too. North Dakota Gov. Kelly Armstrong declared an emergency Sept. 29 and temporarily allowed vehicles connected with agricultural operations to use red-dyed diesel on public roads. Texas Gov. Greg Abbott has also eased restrictions on the dyed fuel, which is normally marked for uses outside public highways in areas like agriculture and taxed at a lower rate. Armstrong’s statement says the order could save eligible users 19 cents a gallon in state taxes through Nov. 30, though it leaves the federal diesel tax in place.
For shippers, the more immediate development is the combination of expensive diesel, firmer freight rates and unhappy operators as they review costs and prepare for their new year contract renewals.
Freight rates are also firming
CFOs should be aware that diesel is getting more expensive in a freight market that has begun to give carriers much more pricing power. For the week beginning Sept. 13, national spot rates stood well above their nine-year seasonal averages, according to DAT data reported by Trucking Dive: 20% for dry vans, 28% for refrigerated trailers and 25% for flatbeds.
Those longer-term comparisons tell a different story from the week’s price changes, as dry van rates slipped 3 cents to $2.17 per mile, while refrigerated rates gained 2 cents to $2.73. Flatbed rates fell 2 cents nationally to $2.60, even as rates rose 6 cents across the states DAT considers bellwethers for that market, Trucking Dive also reported.
After the Labor Day slowdown, freight returned faster than truck postings did. Loads posted on DAT One climbed 16% to 2.9 million during the week of Sept. 13, compared with an 8% increase in truck postings, according to a separate Trucking Dive report. Load-to-truck ratios rose across dry van, refrigerated and flatbed freight, though the holiday-shortened prior week makes the size of the jump difficult to read as a lasting shift.
Equipment orders offer another sign that carriers see reason to invest. Citing FTR data, Trucking Dive reported that trailer orders reached 24,144 units in August, up 43% from July.
Diesel costs seep into freight bills
Cherri Harris, CEO and owner of Swint Logistics Group, said rising diesel prices have significantly affected her company’s bottom line. Swint operates as a motor carrier, moving freight throughout the continental U.S. and Canada by semi-trailer and local deliveries.
Harris told NewsNation on Sept. 27 that Swint signed many of its contracts before fuel prices rose. The companies hiring Swint have offered it a few additional hours of work each day to help cover the increase, she said, though she had a candid take about how sustainable that is.
“It is a help, but it is not a solution,” Harris said. Swint’s experience shows how long a carrier can remain exposed to higher fuel costs after agreeing to a price, even when a customer tries to help.
Fuel surcharges commonly adjust on a weekly schedule tied to the EIA’s diesel price, Bob Costello, chief economist for the American Trucking Associations, told The Washington Post last week. A carrier buying fuel after a sharp midweek increase may have to wait for the next adjustment to recover that cost. Shippers, in turn, see the increase when the new surcharge reaches their freight bills.
That puts the cost in the hands of finance teams already working closely with logistics. At online home furnishings retailer Wayfair, finance and operations jointly evaluate shipping costs and pricing through CastleGate, the company’s fulfillment platform, CFO Kate Gulliver said during a panel at a June CFO Leadership Council event.
She also pointed to freight auditing as an AI use case, given the volume of shipping transactions Wayfair processes. Gulliver spoke before the current diesel increase, but her comments show how freight expenses factor into the company’s financial decisions.
An issue bigger than finance
The supply problem reaches beyond oil tankers passing through the highly coveted Strait of Hormuz. Ukrainian attacks on Russian refineries — something President Trump publicly called a stop to because of its global impact on fuel prices — have tightened fuel markets. However, refined-product exports from the Gulf have recovered more quickly than expected, as reported by The Wall Street Journal.
The U.S. can release crude from its Strategic Petroleum Reserve, but that oil must still be refined before it becomes diesel. Much of the reserve is stored in underground salt caverns, a secure and relatively inexpensive way to hold large volumes of oil. Operators pump water into the caverns to push crude to the surface, and the reserve’s maximum withdrawal rate declines as its oil inventory falls.
One common measure of refining margins, the 3-2-1 crack spread, treats three barrels of crude as the input for two barrels of gasoline and one barrel of diesel, illustrating the refining process and showing why the price of crude alone does not determine what truckers pay for fuel.
The White House is also considering a ban on U.S. diesel exports, as Trump said Sunday he was “thinking very seriously” about the idea. Andy Lipow, president of Lipow Oil Associates, told Yahoo Finance that a ban could lower domestic diesel prices while forcing Gulf Coast refiners to cut crude processing once storage fills. That would also reduce their output of gasoline and other fuels, he said.
As recently as Tuesday, the U.S. offered to loan up to 40 million barrels of crude from the Strategic Petroleum Reserve, though Reuters noted that routine drawdowns are restricted once stocks fall below 252.4 million barrels.
There’s also lots of speculation around the effects that extend beyond freight contracts as colder weather approaches. Diesel and heating oil are closely related fuels, and the Energy Information Administration expects low U.S. distillate inventories to contribute to higher home heating costs in the Northeast. Higher shipping bills will also add to the cost of moving food and medicine, too.
Earlier this year, some governments around the world like Malaysia and Pakistan enforced remote work policies where possible to reduce fuel use during oil disruptions, but no one is seriously considering such a measure in the U.S. as of now.
