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Fuel surcharges loom for shippers as Ukraine crisis drives up oil prices

Shippers may face fuel surcharges as transport companies & small operators pass on the expenses after global oil prices jumped to above $100 per barrel early Tuesday, primarily due to the conflict in Ukraine.

Increased oil prices automatically translate to higher fuel costs. The Department Of Energy announced that diesel prices in the United States were $4.104 for every gallon, rising 4.9 cents in a week and $1.032 higher than a year ago. Diesel prices are anticipated to rise as the conflict between Russia and Ukraine continues and as oil corporations withdraw their business from Russia, the world’s third-largest oil producer behind the United States & Saudi Arabia.

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Gas prices are also rising, with a weekly average of $3.608 a gallon, up 7.8 cents from the previous week and 89.7 cents more than a year ago. California has much higher pricing than the rest of the country: diesel costs $5.077 for every gallon inside the Golden State.

For the time being, fleets will pass on expenses to shippers through fuel surcharges. However, such fees don’t cover empty kilometers, and fuel expenses can eat into profit margins.

After driver salary, fuel is a fleet’s second-largest expenditure. Gasoline surcharges are generally included in contracts for large fleets, and they usually have pricing agreements with fuel suppliers. However, this is not true for everyone. The Founder Independent Driver Association is getting calls from drivers inquiring how to add fuel costs to their per-mile fees because of the recent increase in diesel prices.

Everyone, especially shippers and large fleets, will be affected by increased gasoline costs. However, the little trucker may be the hardest hurt. “Some clients wouldn’t pay a gasoline extra; some would,” he discovered as an independent owner-operator.

Fuel prices were already rising through 2021, and the previous earnings cycle had little impact on larger fleets in Q4. However, other CEOs mentioned patterns that they believe are partly due to increasing gasoline costs. Fuel prices were pressuring shippers at J.B. Hunt to choose intermodal over vehicles.

“With increased truck rates, a constrained labor market, higher fuel prices, as well as a 60percentage improvement in emission efficiency intermodal delivers compared to a truck, we see enormous pent-up demand to transfer highway freight into intermodal,” the business claims.

However, with e-commerce continuing to increase throughout the economic recovery, the increase in fuel rates has tended to boost overall profits for large fleets. Revenue was $3.5 billion in the fourth quarter, up 28% from the previous quarter. There is no imminent price drop, at least not due to a sudden cease-fire in Ukraine or perhaps an increase in oil output.

Demand destruction, which generally precedes a recession, as it occurred in 2008 when oil prices reached around $150 per barrel, is the only thing that may drive prices down. High gasoline prices can stifle demand, resulting in fewer purchase decisions and less freight transportation.

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As things are, the only thing that might bring prices down is demand destruction. “If the economy is rising, there isn’t much you can do.”

To make it more complicated, a portion of the diesel stock in the United States is imported from Russia. As per the American Fuel and Petrochemical Manufacturers, the United States bought an average of 209,000 barrels of crude oil and 500,000 barrels of other oil products per day from Russia in 2021. That small percentage might disappear if the federal government pressures private enterprises to stop importing Russian diesel.

Because fuel supplies are limited, even a small amount might be detrimental. He said that the Biden administration decreased oil and gas output after taking office a year ago, most notably by rejecting the authorization to develop the Keystone Pipeline oil pipeline in Alberta, Canada.

In November, the release of fifty million barrels from the US Strategic Petroleum Reserve did not affect oil price.

President Joe Biden said that the US and 30 other nations had reached an agreement to release sixty million barrels of oil from global reserves.

“America will lead that endeavor,” Biden added, “by releasing Thirty million barrels in our own Strategic Petroleum Reserve.” “And, along with our friends, we stand ready to do more if required.” The statement did not instantly calm oil markets, with West Texas Intermediate oil breaking $109 per barrel by Wednesday.

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