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Soaring Diesel Prices Ripple Across Local, State Economy

Posted on: Thursday, 20 April 2006, 09:00 CDT

By Gary Richards, San Jose Mercury News, Calif.

Apr. 20--If surging gas prices have you down, be thankful you're not driving a diesel car or a big rig, or running a transit agency.

Diesel prices reached an average of $3.08 a gallon in California on Wednesday, and shot up to $3.39 at a Shell station on Hamilton Avenue near Highway 17 in Campbell -- 14 cents higher than on Sunday. They are the most expensive prices in the United States, outside of Hawaii.

And even if your car's choice of fuel is gasoline, the skyrocketing diesel prices are sending a ripple of rising prices across the economy, especially hitting the trucking industry where it hurts.

"It doesn't matter whether you haul dirt or diapers. The cost of fuel is going to have an effect on the final price, which means it's going up," said Steve Johnson of Santa Clara Transfer, a trucking company that delivers raw materials to the fiberglass industry, along with asphalt and cement. He has seen his fuel bill jump from $30,000 to more than $50,000 a month.

"We pass these costs onto the customer in the form of fuel surcharges," he said, "but it seems you cannot put them on fast enough to keep up."

It's starting to show across the economy. Consumer prices jumped by 0.4 percent last month, three times the meager 0.1 percent gain in February.

Plenty of others are feeling the diesel drain:

-- Roadstar Trucking in Hayward pays $17,000 more for each truckload of fuel it buys to operate its 45 trucks. "That costs our small firm almost a quarter of a million dollars annually," company President Bob Ramorino said.

-- The Valley Transportation Authority this month set aside an extra $1.5 million for fuel costs for buses, but that doesn't mean riders will see an increase in fares or drop in service, spokeswoman Jayme Kunz said. The transit agency was able to absorb the effect because sales tax receipts jumped $1.9 million for the first quarter of the year, she said.

-- The diesel budget for the Altamont Commuter Express train has nearly doubled, from $500,000 last year to $900,000 this year.

-- Fuel expenses have gone from about $5,700 a month to about $10,000 at Mountain View Towing. "Serious ouch!" driver Ray Elliott said.

At Santa Clara Transfer, Johnson said his company is trying to reduce fuel costs by making better use of scheduling, using GPS systems to track vehicles and running during non-commute hours so drivers won't waste fuel by being stuck in traffic jams. The firm is also using computers to automatically shut down engines after five minutes of idling and teaching drivers fuel-saving techniques.

There's scant evidence that prices are going to ease as demand for diesel is increasing even faster than that for gasoline -- growing at a 3.8 percent rate over last year compared with 0.4 percent for gas.

"That may be a sign that gasoline users are cutting their vehicle use and changing driving habits to save money," said Rob Schlichting of the California Energy Commission. "Diesel is more of a commercial transport fuel, and truckers still have to move goods, even when prices are high."

International fears ranging from a terrorist attack on overseas refineries, the Iran-nuclear situation and fighting in Nigeria are fueling the latest spike, shooting crude oil prices to more than $72 a barrel, more than $10 higher than a month ago. Each $1 increase translates into a 2 1/2-cent hike at the pump for both diesel and gas.

In California and across the country, air standards require cleaner-burning diesel that is more expensive to produce. New federal ultra-low sulfur standards kick in June 1, designed to reduce emissions of nitrogen oxides and particulate matter from vehicles that use diesel fuel.

Diesel prices were as low as $1.76 a gallon three years ago in San Jose, but have been higher than gas prices for almost two years in California. On Wednesday, diesel -- which accounts for about 20 percent of the fuel sold in the state -- was 9 cents more expensive than the average gallon of regular gasoline.

Micheal Thierry of Aptos said he thought he was being smart a few years ago when he bought a GMC Crew-cab diesel for his commute over Highway 17.

"I thought I was doing really good until two weeks after I bought my diesel; diesel went up to the same as premium," Thierry said, adding that on a good day he can get 24 miles a gallon in his diesel truck. "Then diesel went higher than premium, sometimes as much as 30 cents a gallon."

Chris Sellers of Salinas and her husband bought a 2001 Dodge Ram 2500 diesel for the same reasons.

"I thought I was making an economical decision. Wrong," she said, noting that a recent fill-up at $3 a gallon cost $105. Now all she can say is: "Painful."

Contact Gary Richards at mrroadshow@mercurynews.com or (408) 920-5335.

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Copyright (c) 2006, San Jose Mercury News, Calif.

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Source: San Jose Mercury News

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