Analysts: Diesel Price Augurs Carrier Casualty Acceleration
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Soaring diesel prices are likely to push more trucking companies out of business, especially smaller carriers, after casualties already spiked in the first two-thirds of the year, according to analysts.
Speaking at the FTR Transportation Conference 2023, Stifel Associate Vice President Bruce Chan said Sept. 12 that higher fuel prices are likely to mean the loss of more trucking companies in what is already a weak freight market.
There certainly could be an acceleration in the number of smaller carriers exiting the market if diesel prices continue to rise, FTR Transportation Intelligence Vice President of Trucking Research Avery Vise told conference attendees.
The first seven months of 2023 saw the exit of 55,000 carriers, primarily in the small carrier segment, Vise said.
In the first seven months of 2023, driver numbers fell by 138,000 if the decline in the carrier numbers is analyzed, he said. Of that total, over 82,000 came from companies with five trucks or less, he noted.
Vise says the exit of small carriers is a normal market correction in a weak freight environment. (FTR Transportation Intelligence)
“I’m sure carriers feel things are really rough because [revenues] have been going down; on the other hand, I think shippers are probably, like, well, it should have come down more than it has,” said Vise. “So, bottom line, nobody’s really happy.”
The exit of the small carriers is a normal market correction in a weak freight environment, Vise said.
For-hire trucking revenues dropped more than 10% year-over-year in the second quarter of 2023, a steeper fall than in the same period three years earlier, during the earliest days of the COVID-19 pandemic, Vise said, citing U.S. Census Bureau data.
Carriers are hunting for business much more aggressively in such an environment, according to a major retailer. “I would be lying if I said it was easy,” said Crate & Barrel Senior Vice President Supply Chain Rebecca Wlazlo, who joined the furniture and home decor group in 2022.
The executive told FTR Chairman Eric Starks on Sept. 12 that she cannot keep up with the inquiries from carriers or their intermediaries, which had risen from one to two a day to 20 a day.
Times are going to get even tougher. The national average diesel price climbed 4.8 cents week-on-week to reach $4.54, according to Energy Information Administration data released Sept. 11. Diesel’s average price has risen eight consecutive weeks, with the increases totaling 73.4 cents.
But a gallon of diesel on average actually costs 49.3 cents less than it did at this time in 2022.
However, at the end of the second quarter, the average price was $1.908 a gallon cheaper than a year earlier.
Diesel prices have been higher than expected, Vise said, explaining that $85 a barrel for WTI crude would typically place diesel in the $4.20 to $4.25 range, whereas at the moment it is above $4.50.
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Benchmark front-month U.S. diesel futures, meanwhile, were trading above $3.43 a gallon Sept. 13, compared with less than $2.80 per gallon in late July and around $2.25 a gallon earlier in the summer.
Front-month WTI crude futures were trading above $88 a barrel Sept. 13, an increase of $10 a barrel since Aug. 23 and more than $20 a barrel since late July, data show. That’s a discount of more than $2 to its European benchmark crude counterpart, Brent.
Bank of America Commodity and Derivatives Strategist Francisco Blanch said Sept. 13 that Brent prices could race past the $100-a-barrel level by the end of 2023, citing crude consumption in China and India on the demand side of the equation and continued Saudi and Russian supply cuts on the supply side.
Blanch added that wholesale distillate fuel prices — including trucking’s main fuel, diesel — have outpaced both crude and gasoline increases in the past couple of months.
Another factor likely to lead to carriers shuttering is the impact of interest rates, said Chan.
A lot of companies are at risk from some of the issues that contributed to Yellow Corp.’s recent demise, Chan said, pointing to debt servicing, interest rate increases and over-leveraging, especially for newer companies.
The freight market is in a unique cycle, Chan said, as usually when spot prices decrease, so do costs; however, labor, safety and fuel costs are increasing.
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