High gas prices hurt. How the diesel price also harms consumers

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If you are wondering what swells The price of everything you buy, the cost of a gallon of diesel, is a good place to start.

Record prices for gas and diesel across the country are contributing significantly to inflation not seen in 40 years, and it’s worse in California, where both fuels cost more than anywhere else in the country.

For motorists, every visit to the pump brings a new portion of pain. But consumers should also be concerned about how diesel, something most people never buy, is quietly denting their wallets.

That’s because diesel powers the world’s economic engine and the price of the fuel has risen faster and higher than that of gasoline.

“People should be very concerned. This will affect the economy,” said economist Philip K. Verleger Jr., who has analyzed energy markets for more than 50 years.

Gas and diesel were dragged higher by oil’s surge after Russia invaded Ukraine and the US banned Russian petroleum products. Buoyant demand for both fuels contributed to the jump.

U.S. diesel prices rose to $5.57 a gallon Monday, up from $3.25 a year earlier, according to the Department of Energy’s weekly survey, although major truck companies have some protection from sudden price spikes through contracts with suppliers.

In the US, trucks and trains are the largest consumers of diesel. They transport most of the products that consumers use, as well as raw materials, to manufacturers, construction sites and the like, Verleger said, putting upward pressure on prices throughout the supply chain.

Diesel also powers key sectors, including agriculture, construction, and manufacturing. Even your favorite food truck is likely to run on diesel, making your mobile comfort food cost more.

To understand how diesel prices are affecting consumers, look at trucking companies like Liberty Linehaul West.

The Montebello company is spending an average of $1,340 per truck, up from $770 a year ago, to fill its 50 large rigs with diesel, President Greg Dubuque said. For trucks on California-only routes, the cost is significantly higher, since all fuels — whether diesel for an 18-wheeler or gasoline for a passenger car — cost much more in the Golden State than anywhere else in the US

Greg Dubuque, president of Liberty Linehaul West, stands on the loading dock of the Montebello company.

(Jason Armond/Los Angeles Times)

With Dubuque paying so much more for diesel, consumers are likely paying more for anything the company supplies.

And Liberty Linehaul delivers a lot, as many of its rigs shuttle between giant warehouses and retailers of all sizes across the U.S. and Canada. These charges contain items as small as jewelry or as large as furniture. Another common supply is clothing.

In addition, almost all of these products arrived at the warehouse from overseas via cargo ship (using diesel for part of the voyage) and diesel-guzzling trucks.

Liberty Linehaul also does a healthy business in rigging, lighting and audio equipment for large entertainment events, increasing the pressure on promoters to raise ticket prices.

“We’re trying to manage it as best we can, but it’s tearing us apart,” said Dubuque, who is also chairman of the California Trucking Assn. “As an industry, we have never seen anything like this. It’s hard to keep up when that price goes up and it impacted our bottom line by at least 12%.”

The diesel-dependent members of the haulage group haul an even broader range of things than Liberty Linehaul, Dubuque said, pretty much “any product that needs to be hauled from one point to another.” The list includes food, fuel, medical equipment, processor chips, and automobiles.

Walmart and Target last week cited higher-than-expected fuel costs as a factor in quarterly earnings that fell short of Wall Street’s expectations, and both retailers’ shares plummeted. Executives at the retail giants said higher-than-expected fuel and other costs would mean higher prices for shoppers.

At Walmart, which owns a fleet of 7,400 diesel trucks, U.S. fuel costs were more than $160 million higher than the company had forecast, Chief Executive Doug McMillon told analysts.

A Walmart truck drives down a freeway.

Walmart, which operates a fleet of 7,400 diesel trucks, paid $160 million more than expected for fuel in the first quarter, causing the retailer to post profits that fell short of Wall Street’s expectations.

(Morry Gash/Associated Press)

“We generally passed on cost increases from suppliers at the category cost of goods level, but fuel costs increased faster than we could pass them on during the quarter,” McMillon said.

Of course, skyrocketing fuel costs aren’t the only reason for 1980s-style inflation. Supply chain issues, buoyant consumer demand and rising labor costs are all contributing to this problem, as noted by the National Retail Federation in its latest Monthly Economic Report.

Here’s a sampling of industries impacted by rising diesel prices and how some of those higher costs are reaching consumers:

Trailers stand at the loading dock of the Liberty Linehaul West trucking company.

Trailers stand at the loading dock of the Liberty Linehaul West trucking company in Montebello as they wait to be filled May 12.

(Jason Armond/Los Angeles Times)

Agriculture

American agriculture relies on diesel to power most heavy-duty farm equipment.

The plows that prepare the soil for sowing are powered by diesel. Tillage machines that loosen and aerate the soil and machines that fertilize it use diesel. Planting and seeding machines need diesel. Once the food is grown, come the harvesters, which run on – you guessed it – diesel.

High diesel prices further aggravate farmers’ financial situation, Verleger said.

“Farmers pay for the diesel, plant, hope the harvest comes, hope the prices are right,” he said. “Now they may not have enough cash and banks may not give them the money to buy all the fuel they need. They may be planting smaller crops, which just means food prices will be even higher.”

Greg Dubuque walks through the loading dock where the trailers are waiting to be filled

Greg Dubuque, president of trucking company Liberty Linehaul West, walks through the loading dock where the trailers are waiting to be loaded.

(Jason Armond/Los Angeles Times)

construction

Diesel is the construction sector’s workhorse, accounting for 98% of the industry’s energy use, according to the Diesel Technology Forum, a trade group promoting diesel technology. Applications include heavy equipment such as excavators to dig foundations, graders to move earth and pile drivers to reinforce foundations.

Consider the typical office building. It may be necessary to remove three to four stories of earth being transported by diesel trucks. Cranes, powered by diesel, help workers construct the frame of the structure. All the equipment needed to run an office building is brought there by diesel truck.

The construction of new houses is also affected, as is the granny flat or extended kitchen you have planned.

The ordered devices that you are still waiting for? When they finally arrive, they are delivered by diesel truck.

manufacturing and mining

Diesel is a fundamental fuel for mining and manufacturing, as well as logging, according to the Diesel Technology Forum.

More than 60% of US mining and fuel production facilities are diesel-powered, the group said.

Manufacturers use a wide range of diesel-powered equipment to create, as the Diesel Technology Forum put it, “the goods and services that Americans use in their daily lives.” For example, diesel often fuels steam boilers used in chemical plants and textile mills, according to the National Renewable Energy Laboratory.

Many industrial plants also have diesel generators for backup power, a use shared by institutional facilities, hospitals, office buildings and electric utility companies, according to the Department of Energy.

transport

The industry that moves you, your kids and your belongings still relies on diesel, despite some advances from alternative fuels and electric vehicles.

Government data shows that more than 80% of US goods are imported, meaning they likely got here on a ship or truck. Planes fly on jet fuel, but air cargo operations rely on diesel lifts and vehicles to move planes, according to the Diesel Techology Forum.

In California, according to the California Trucking Assn. more than 80% of all consumer goods delivered with diesel trucks. According to the Diesel Technology Forum, 76% of all commercial vehicles and 98% of all large trucks nationwide run on diesel.

That means your nightly e-commerce habit and your next shopping spree could cost you more because diesel costs more.

Moving into a new house or a new apartment? Expect the truck transporting your belongings to run on diesel.

Children are among the most valuable cargo, and 95% of all school buses still run on diesel, according to economic analysis firm IHS Markit. Don’t you care because you don’t have kids? You still pay for public education with your taxes.

84 percent of U.S. transit buses burn diesel, according to the Diesel Technology Forum. Almost all of the country’s 23,000 locomotives that haul freight or people slurp diesel.

Why diesel remains expensive

Diesel prices are likely to remain high longer than gasoline prices as diesel inventories have fallen to a multi-year low, said Patrick De Haan, Gas Buddy’s head of petroleum analysis. Department of Energy data released Tuesday showed inventories of distillates, a category that includes diesel, are 22% below the five-year average for this time of year.

California brings its own problems to the table. De Haan because diesel production at state refineries fell by 26%. California’s strict air quality regulations dictate cleaner-burning fuels than are produced in most of the US, and few out-of-state refineries produce the unique blends.

Additionally, the embargo on Russian oil imports has hit California in a way that hasn’t hit other states as hard.

“Russia sold the US 800,000 barrels a day of oil products, essentially semi-refined heavy oil that California refiners love because it’s already been partially processed,” De Haan said. California refiners are struggling to substitute Russian products at a comparable price, he said.

Energy economist Verleger takes a long-term perspective and takes into account the cyclical nature of energy markets and the economy.

“The diesel thing is pretty serious and I think I know how it’s going to come off,” he said. “I think a year from now we’re going to look and ask ourselves, ‘How did we get into this bad recession?’ ”

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