The cost of a barrel of crude oil moved up a full 1 percent on Nov. 10, just the latest uptick in a trend that seems to be gaining momentum. That $1.09 increase brought the commodity's price to $87.81 a barrel, its highest point in over two years. And the rise will continue. Virtually all indicators point north when it comes to the cost of oil in 2011 and beyond.
In fact, just one day earlier, the U.S. Department of Energy (DOE) had issued its forecast for both gasoline and diesel fuel for 2011, pegging the former at $2.97 a gallon—an increase of 20 cents over the average price in 2010 and 62 cents over 2009—and the latter at $3.19 a gallon, representing a 22-cent increase from 2010 and a 73-cent increase over 2009.
Making matters worse, many market watchers believe the DOE's estimates are too low. The evidence suggests they're right. Consider that the same week DOE released its short-term energy outlook calling for diesel to average $3.09 per gallon during the winter months, the average national price of diesel crept up to just under $3.12 a gallon.
For logistics operations that rely on trucking services of any kind (and are there any out there that don't?), things aren't looking good for your budget. Fuel is going to cost more, potentially a lot more. In fact, the view from here is that over the next 12 to 18 months, diesel fuel prices could soar well past the historic highs of the summer of 2008, when they peaked at $4.85 per gallon.
And truckers will have no choice but to pass along these cost increases to their shipper customers. It would be bad enough if this were an isolated case. But it's not. All this comes at a time when truckers are still recovering from a financial body blow delivered by several earlier government directives. Take, for example, the government's "clean engine" mandates. As DC VELOCITY Senior Editor Mark Solomon has pointed out, in just the past eight years, truckers have been required to upgrade their diesel engines three times to reduce or eliminate emissions of nitrous oxide and particulate matter from the atmosphere. "It has been a great success, as nitrous oxide and particulate matter levels are near zero, but it has come at a price," Solomon says. "It has cost about $20,000 per rig to meet the three U.S. Environmental Protection Agency (EPA) mandates. What's more, it was discovered that the only way to keep particulate matter from reaching the atmosphere is to trap the pollutants inside the engine and use the combustion generated by diesel fuel to incinerate the particulate matter."
Unfortunately, the process resulted in a notable drag on fuel economy, which means more diesel fuel is needed to move the same freight volume the same distance, which—in turn—increases carbon emissions. The industry has paid dearly for the clean engine directives.
Now, it appears that the EPA and the U.S. Department of Transportation (DOT) are looking to crack down further on carbon emitted by over-the-road trucks. On Oct. 25, the two agencies announced draft rules that would set both greenhouse-gas limits and fuel-efficiency standards for heavy-duty trucks. The rules, which would apply to trucks for model years 2014 to 2018, will surely mean another round of operating and capital costs for truckers.
Fuel costs are rising. New regulations are looming. The economy is still struggling. And your freight bills are about to increase. Some shippers will no doubt dig in their heels and refuse to accept the rate hikes because the money simply isn't in their budgets. But they'll soon discover that just saying no isn't one of the options. Whether they've budgeted for it or not, they're still going to have to pay the higher rates. If they don't, their freight simply is not going to move.