High diesel costs might be shared with consumers
seattletimes.nwsource.com Monday, March 17, 2003 - 11:01 a.m. Pacific By Luke Timmerman Seattle Times business reporter MIKE SIEGEL / THE SEATTLE TIMES
Truckers, like these heading east along Interstate 90, are commonly paying $200 a day to fill their tanks with diesel. Many are trying to raise delivery charges to help cover the costs, and that eventually could mean higher prices for consumer goods.
Imagine paying $200 a day to fill your tank instead of $150.
That's what truckers are facing as the price of diesel, the fuel that transports most goods onto American store shelves and heats many homes, has reached record highs. Diesel climbed to $2.05 a gallon yesterday in Washington, according to the American Automobile Association.
Those who operate trucks — from large semis to small delivery trucks — are feeling the pressure. If it lasts long, economists say consumers will start taking a hit, too.
James Wallace, president of Gee Cee's Truck Stop along Interstate 5 in Southwest Washington, one of the state's largest diesel retailers, said truckers commonly pay $200 for daily fill-ups that cost $150 a month ago. Many are trying to raise their delivery charges to cover the costs, but some customers refuse to pay more, so truckers are forced to absorb the costs, he said.
Some truckers are postponing maintenance, such as oil changes and tire rotations, to stay in business, he said. If fuel prices stay high for months, he said some will go bankrupt.
"I don't empathize with the gas-guzzling public as much as the truckers," Wallace said. "With gas, most people waste a lot just by going to the market to get a gallon of milk. But truckers don't have a choice. Fuel costs are a fact of life for them."
It's also part of life for Metro, King County's bus service that operates a fleet of 1,300 vehicles. The buses consume ultra-low-sulfur diesel, which last week cost $1.41 per gallon, up from $1.08 in early February. It matters to Metro's budget: The annual impact of each penny increase works out to $100,000 a year, said Metro spokeswoman Linda Thielke. If prices stay high, it could cost the county millions.
Diesel prices are propelled by the same forces moving the price of gas. Crude-oil prices have reached the highest levels since the 1991 Persian Gulf War, based on uncertainty about a new war in Iraq and lingering supply shortages from the general strike in Venezuela. On top of that, the cold winter in the East and Midwest has drained supplies of home heating oil, which closely resembles motor diesel.
Refiners are postponing crude-oil purchases in hopes that prices will fall, which in turn depletes inventories of refined fuels like gas and diesel, said Severin Borenstein, director of the University of California Energy Institute.
The American Trucking Association has asked the Bush administration to release oil from the nation's Strategic Petroleum Reserve to bring down prices, so far without success.
Bob Costello, the association's chief economist, said for every 10-cent-per-gallon increase in diesel, there are about 1,000 bankruptcies in fleets with five trucks or more. If enough go out of business that the survivors gain pricing power, they could impose surcharges on, say, grocery chains, who could then pass it along to consumers by raising the price of milk.
"If this price increase lasts for months, we'll see this show up in our prices at the store," Costello said.
Phil Verleger, an energy economist affiliated with the Council on Foreign Relations, said high fuel prices could shave off 3 percent or more from the gross domestic product, leading the country into a recession by the fourth quarter of 2004.
But he doubts that it will get to that point. The federal government tapped the nation's reserves when the ground war began in the first Gulf War, and oil prices fell dramatically within an hour.
Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com