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Home » Truckers' 2015 fuel tab to fall by $42 billion as oil prices continue sharp decline, group forecasts
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Truckers' 2015 fuel tab to fall by $42 billion as oil prices continue sharp decline, group forecasts

August 24, 2015
Mark B. Solomon
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The trucking industry's 2015 diesel fuel bill will come in $42 billion less than 2014's tab due to the decline in oil prices which began last fall and has re-accelerated in recent weeks, according to estimates provided last week by the American Trucking Associations (ATA).

ATA estimated that the industry would spend about $105 billion on diesel fuel by the end of 2015, compared with about $147 billion in 2014. The trade group, which represents the largest for-hire motor carriers, based its forecast on information from the Department of Energy's Energy Information Administration (EIA) and the group's internal data on diesel consumption.

The figures include fuel consumed by for-hire and private fleets across the board, said Sean McNally, a spokesman for the group.

The amount of actual 2015 savings may end up even bigger if the current decline in oil and fuel prices continues. A barrel of West Texas Intermediate (WTI) crude for delivery in October was priced at $38.22 in trading on the New York Mercantile Exchange, down $2.23 a barrel. Prices for North Sea Brené crude, considered the benchmark for U.S. retail diesel and gasoline prices, fell nearly $3 a barrel, to $42.50 a barrel. These are closing levels not seen since the depths of the recession in early 2009.

According to EIA's weekly update on pump prices for gasoline and diesel, which was released at around 5 p.m. eastern time today, the average price of a gallon of on-highway diesel was quoted at $2.561 cents, a decline of $1.26 a gallon from the same period a year ago. The data includes today's dramatic pricing moves.

Sean Hill, an EIA economist, said in an e-mail last week that retail diesel prices could fall another 25 to 30 cents a gallon by year's end due to excessive inventory levels, concerns over end demand, and the potential impact of Iranian oil hitting world markets and adding to supply concerns.

EIA last Wednesday revised downward its forecasts for WTI crude to $49 a barrel in 2015 and $54 a barrel in 2016, declines of $6 and $8 a barrel, respectively, from what the agency forecast in July. The average price of a barrel of Brené crude will remain about $5 a barrel above WTI's levels for the rest of 2015 and into 2016, EIA said.

Motor carriers assess fuel surcharges on users to cover their fuel costs. The average fuel surcharge (FSC) for the spot market is currently just under 30 cents per mile, according to FTR, a consultancy. The average FSC was at 50 cents per mile when diesel was priced around $3.90, FTR said.

The jury is out on how or whether FSCs reflect the dramatic drop in truckers' fuel costs. A trucking-industry source said FSCs on contract rates are currently not falling as fast as the declines in diesel. Jonathan Starks, FTR's director of transportation analysis, said FSCs are usually adjusted within weeks, or a couple of months at most, of fuel-price movements. The violent sell-off that occurred in the last four months of 2014—a period when oil prices were cut nearly in half—is fully reflected in current surcharge levels, Starks said.

However, Charles W. Clowdis Jr., managing director, global transportation, for IHS Economics and Country Risk, said surcharges don't always fall in lockstep with fuel price declines. "Unfortunately, there are always carriers who are slower to lower FSCs when diesel prices are dropping than they are quick to raise FSCs. This is not to say that all or top-tier carriers would do this, but we have seen examples over the years where the higher FSC's were being applied well after there was a dramatic drop in fuel prices like we are experiencing now."

Clowdis advised truck users to compare their FSC charges with the language in their contracts to make sure that any adjustments accurately reflect the changes in the marketplace.

The decline on oil prices on Monday coincided with another massive selloff in global equity markets, taking well-known indices like the Standard & Poor's 500 index and the Dow Jones Industrial Average about 10 percent below their all-time highs. The 20-stock Dow Jones Transportation Average (DJT) fell $276.98, a 3.52 percent decline to close at $7,595, its lowest level of 2015. In mid-March, the average was trading at around $9,100 before beginning a multi-month decline that began raising concerns about the strength of the U.S. economy.

Transportation has traditionally been viewed as a leading indicator of broader economic conditions because the pace of shipping orders reflect future business confidence, or lack thereof. However, a recent school of thought puts less emphasis on transportation as a leading indicator because services, not production, compose an ever-larger portion of the U.S. economy.

Transportation Trucking
KEYWORDS FTR IHS Markit Economics U.S. Department of Transportation
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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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