Declining fuel prices a bright spot for trucking

Declining fuel prices a bright spot for trucking

Despite a variety of ongoing challenges facing the trucking industry, especially the driver shortage, one particular bright spot is the slow yet steady decline of diesel fuel prices in the U.S.

According to data tracked by the Energy Information Administration (EIA), national average retail pump prices dropped again this week though only slightly, falling a penny to $3.843 per gallon. That’s also 5.3 cents per gallon cheaper compared to the same week last year, the agency noted.

Diesel now remains above the $4 per gallon mark only in California and the West Coast. Diesel prices in California declined 3/10ths of a penny to $4.084 this week, while on the West Coast prices stayed flat compared with last week, holding steady at $4.016.

However, with California removed from the mix, diesel on the West Coast actually inched up 5/10ths of a penny to $3.935 per gallon – the only price increased for diesel witnessed this week in the U.S., the EIA said.

By contrast, the biggest one-week drop in diesel occurred in New England, the agency noted, where prices fell 3.7 cents to $3.982 per gallon.

New research by Michael Zimm, a truck transportation technology and business services analyst with GE Capital, point out that this gradual decline in fuel prices is one of several positive factors favoring carriers at the moment.

“Given strengthening freight trends coupled with still very tight industry capacity, the supply/demand equation continues to favor the carriers,” he noted in a recent research brief. “Also on the plus side, fuel prices have moderated slightly and HOS [hours of service] related operational inefficiencies continue to put a crimp in capacity while providing support for rising rates.”

Despite the economic contraction during first quarter this year, GE remains optimistic about U.S. gross domestic product [GDP] growth and the freight volumes that go with it. Currently, GE’s economists continue to expect U.S. GDP growth in 2014 to end at 2.6%, up from sub-2% in 2013.

Retail pump prices for gasoline also declined this week, according to EIA, falling a penny to a national average of $3.505 per gallon, which is 5.6 cents per gallon lower compared to the same week in 2013.

Gasoline prices increased in only two areas of the country this week: the Midwest (up 3.5 cents to $3.451 per gallon) and the Rocky Mountains (up 1.1 cents to $3.652 per gallon).

On the flip side, gasoline dropped in every other U.S. region, declining the most in the Central Atlantic (a 4.1 cent decline to $3.553 per gallon) and in New England (a 4 cent drop to $3.608 per gallon).

Despite the moderation of fuel prices this summer, however, most industry experts caution that improving fuel efficiency will remain a key driver of profitability for trucking for the foreseeable future.

“Fuel efficiency is increasingly an area of emphasis for management [and] specifying aerodynamic standards with respect to tractors, trailers, mud flaps, and mirrors can all make a big difference,” noted John Larkin, managing director at Wall Street investment firm Stifel Nicolaus & Co., in a research brief released back in May.

“For example, adding side skirts, trailer tails, under-trailer aerodynamic devices, space reducers between tractor and trailer, and super single tires can all have a major impact on fuel efficiency,” he said. “All too frequently the overlooked component of the fuel efficiency story is driver training. All the aerodynamic equipment in the world won't offset a driver running too many RPMs or a driver prone to excessive acceleration and/or deceleration.”

And Larkin stressed that the profitability impact from a fleet focused on fuel efficiency can be significant, worth in Stifel’s estimation upwards of 500 to 1000 basis points on a carrier's operating ratio.

TAGS: News
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