High Fuel Prices, its Effects on Trucking and our Economy

Oil prices are soaring through the roof, hitting new all-time highs with each passing day, record high fuel prices have made life challenging for everyone. While everyone is feeling the effects of higher living costs, nobody feels the crunch of rising fuel costs than companies and professionals who rely on being on the road to earn their bread and butter – namely, Professional Truck Drivers. In turn, the impact of rising diesel and gasoline prices is seeping into the broader economy.

As Prices Keep Rising

Several factors have contributed to the surge in energy prices. Geopolitical tensions have flared up since Russia invaded Ukraine on February 24, 2022. The world’s second-largest oil and natural gas producer’s invasion of its neighboring country resulted in the US, NATO, and several other Western countries imposing heavy sanctions against it.

The economic sanctions came with consequences, resulting in a drastic reduction in available global crude oil and natural gas supplies. The uncertainty in oil supply and rise in demand has led to oil prices hitting new all-time highs.

On February 28, 2022, the national average price of diesel fuel was $4.10 per gallon. Within seven days, the diesel fuel prices rose to $4.84 per gallon. A week after that, March 14, 2022, saw diesel prices rise to $5.25. At writing, diesel fuel prices stand at $5.05 per gallon.

Trucking companies and Professional Truck Drivers or owner-operators, are feeling the effects of rising fuel prices. Each trip to the pump has become incredibly expensive. The unpredictability of fuel prices right now makes it harder for Owner Operators and trucking companies to budget. The additional expenses for Professional Truck Drivers and the broader industry translate to higher costs for everyone else.

Oil Prices Touch Everything

The most obvious impact of rising crude oil costs can be seen at gas stations, but the expenses flow through to everything the end-consumer can find on a shelf. The economy was already contending with an inflationary environment. Higher fuel costs for the trucking industry mean that it has to charge its customers more (FCS)  to compensate for the increase in expenses.

As companies feel the financial squeeze of increased fuel prices they pass on the higher costs to the end-consumer. Higher costs of living have adversely impacted consumers’ buying power, eventually consumers will no longer be able to sustain absorbing the expenses.

Higher oil prices make production more expensive for businesses. At a macroeconomic level, oil prices contribute to inflation directly through greater expenses for petroleum products. The indirect impact comes through more expensive bills for raw materials, manufacturing, and transportation. The impact on supply and demand for goods beyond oil can stifle economic growth.

The impact on the trucking market is likely going to affect owner-operators the hardest. Professional Truck Drivers in the owner-operator segment do not have wide enough economic moats to withstand long-standing pressure on profit margins.

The next few months will pose many challenges for owner operators, trucking companies and the broader trucking industry, and the entire economy. It remains to be seen how long the uncertainty will last. Oil prices are heavily linked to how the situation in Ukraine continues to unfold. Whether other oil-producing nations increase production capacity to tackle the supply and demand problem could offer a viable temporary solution. Still, there is no development on that front as of yet.

As trucking industry consultants and experts here at Fr8 World Logi$tix, we understand the difficulties Professional Truck Drivers/owner operators and trucking companies face, especially during the current fuel crisis. We love helping our clients achieve success, we want to help you navigate through these trying times. Give us a call at 713-579-1933, send an email at info@fr8worldlogistix.com to see how we can assist you.

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