Editorial: $2 Diesel and $53 Crude Oil

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espite the fact that average retail diesel prices recently rose above $2 a gallon, trucking fleets have so far expressed little new concern about fuel costs, amid muted reaction from their freight shippers.

After all, with freight volumes running sky high, shippers have readily absorbed fuel surcharges in their push to get enough trucks to haul backed-up cargoes.

Likewise, news that the price of crude oil — the raw material for diesel, gasoline and jet fuel — had pushed through the $50-a-barrel price barrier did little to raise warning flags for the economy.

But last week saw diesel and crude oil extend their record runs, with crude going above $53. So it is a good time to think about how those prices work through the system, and what this may mean for trucking down the road.

When the oil price began surging again in late summer, most consumers at first did not feel much pain because gasoline pump prices had cooled a bit from last spring. But now, gasoline prices are on the rise again. In addition, those who heat their homes and businesses with oil have begun to have a reality check when they fill their tanks for winter.

So the impact of high-cost fuel is now spreading beyond diesel and the busy freight sector. The consumer is bound to notice this time.

Rising fuel prices may yet shock the system. If that happens, consumers inevitably would spend less money on non-fuel items. They would delay or abandon plans to buy all sorts of good things — such as clothing, furniture or computers — that trucks bring. This process can take awhile, but eventually it saps consumer spending, which in turn weakens factory orders and freight hauls.

There are signs at the margin — and in the forces of instability hounding the crude oil market — that this process may already be taking hold. But so far, they’ve escaped much comment amid one of the strongest shipping seasons in memory. Economists from the factory, retail and trucking sectors last week told trucking executives meeting in Las Vegas that they expected the strong momentum to keep their industries busy well into the future.

But if the cost of fuel continues to surge, at some point it will threaten that momentum. At some point, a slowdown in consumer spending would make it hard for manufacturers and retailers to pay ever-higher fuel costs on shipments.

So, while $2 diesel and $53 crude may not in themselves be reasons to worry right now, make no mistake: Those numbers are warning signs.

This story appeared in the Oct. 11 edition of Transport Topics. Subscribe today.