Evolve: How higher fuel prices affect trucking and rail

BIO: Kingston has covered commodities for over 40 years, with most of his career spent at S&P Global Platts. At FreightWaves, he has managed the editorial team, launched FreightWaves Radio on SiriusXM Radio, created the Drilling Deep podcast and written about a wide variety of trucking and energy subjects. 

KEY QUOTES FROM KINGSTON:

“The DOE [Department of Energy weekly price of diesel per gallon (SONAR: DOE.USA)] is up over the past 17 straight weeks. The previous record was 15 weeks. What I find fascinating is that there has been very little pushback [from the trucking industry]. To me, that affirms that fuel surcharges are working as they’re supposed to. It puts that cost of fuel for the fleet to the shipper. This is absolutely affecting the shipper. They are certainly paying for it.”

“The entity in the freight industry that is most jumping up and down in excitement about this is intermodal rail. It is far more energy efficient to move a ton of freight by rail than by truck. Of course, it’s not as quick, but when the price of diesel gets really, really high, the cost benefits of the intermodal operation really stands out. So, that is the one part of the supply chain that is really loving this.”

“OPEC production is about 24.9 million barrels per day. There are projections that OPEC needs to produce 28.1 million barrels per day by the third quarter to keep the market balanced. So, you are talking about more than a 3 million barrels per day deficit by the third quarter. That’s really leading to some of these price increases. Brent bottomed out at around $20 in April [2020] and is now solidly over $65. And going forward, without any changes, the supply-demand balance will call for higher prices.”