BY MITCH MAC DONALD, GROUP EDITORIAL DIRECTOR outbound
your budget is already busted
THE COST OF A BARREL OF CRUDE OIL MOVED UP A FULL PERcentage point 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 partic-
ulate 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 reach-
ing 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 emis-
sions. The industry has paid dearly for the
clean engine directives.
