(NewsNation) — Diesel prices have skyrocketed to record highs in recent weeks, squeezing margins at logistics companies that are already stretched thin and further complicating the nation’s supply chain issues.
While most Americans have their eye on the cost of unleaded, America’s big rig drivers are feeling the pain from a rise in diesel prices.
“In the end, the consumer is paying for this,” said Joe Rajkovacz, the director of governmental affairs and communications for the Western States Trucking Association. “It’s all part of the insidious nature of rising energy prices.”
The national average for a gallon of diesel fuel hit a record $5.62 earlier this month, according to the U.S. Energy Information Administration. That’s a $2.36 increase compared to this time last year.
In 11 states, the cost of diesel has surpassed $6 a gallon, according to AAA. Last week the average price in New England was $6.43 a gallon and in California, prices are even higher, averaging $6.48 a gallon.
Experts say those price hikes disproportionately hurt smaller carriers.
“Members have called me this week and they’re being offered loads that don’t even cover the cost of fuel,” Rajkovacz said.
Large carriers are more likely to benefit from long-term contracts, which often include fuel surcharges, insulating them from short-term changes in the market, whereas small carriers more often rely on the “spot market” — the one-time price to move a load based on the current market rate.
At the height of the pandemic, when demand for goods surged, many truckers moved to the spot market to take advantage of the more dynamic pricing. As spot prices rose, those in the market could benefit because they weren’t tied to a contract.
Rajkovacz said that opportunity led to a surplus of drivers. Now, without long-term contracts and fewer loads to move, those same drivers have become vulnerable as market conditions fluctuate.
“Large fleets, just like the airlines, they’ll buy (diesel) in bulk and so they have a different pricing structure,” Rajkovacz said. “But the majority of the industry are small business truckers.”
And long-haul truckers aren’t the only ones being affected by rising diesel prices. Small businesses that deliver goods locally have also seen their margins disappear.
At Bourget Brothers Building Materials in Santa Monica, California, deliveries are made at a loss.
“It’s just a service pretty much,” said Armando Hernandez, the company’s logistics manager. “We’re losing money on deliveries but we need to keep providing that service to our customers in order to keep going as a business.”
On Wednesday, the Dow fell more than 1,100 points. Much of the drop was attributed to below-average earnings reports from some of the country’s top retailers — Target and Walmart.
Both mega-corporations attributed the disappointing results to rising fuel and labor costs.
Rajkovacz is concerned underperforming retail giants combined with excess truckers on the road could be a sign consumer demand is finally starting to wane.
“Trucking is the ultimate bellwether for what is really going on in the economy,” he said. “When trucking slows down, it means the economy slows down, there’s no two ways around that.”