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Shipping Industries Deal With Rising Diesel Prices

Posted on: Thursday, 11 August 2005, 18:00 CDT

Aug. 11--State diesel prices have soared in the last two weeks, swelling the costs -- and in many cases, fees -- of the industries that depend on it.

If the high costs persist, they could boost the price of any product that is shipped -- in other words, almost everything.

Trucking companies have been forced to push up prices already, and some independent truckers have simply parked their rigs. Farmers, meanwhile, are bracing for shrinking profits as they rev up diesel guzzling tractors for the fall season.

"If it's sustained it will be passed in a gradual way to customers," said Pablo Spiller, Jeffrey A. Jacobs distinguished professor of business and technology at UC Berkeley's Haas School of Business. "When you buy from Amazon or a Dell computer or something else, you're shipment costs are going to increase."

The average price of a gallon of diesel reached $2.94 in California on Monday, up 29 cents from the week prior and 83 cents over a year ago, according to the Energy Information Administration.

Rates have continued to climb this week. In Oakland and surrounding areas, the average stood at $3.05 on Wednesday, up 3 cents from the day before, according to the AAA Daily Fuel Gauge Report.

There are three major factors at work, according to Rob Schlichting, spokesman for the California Energy Commission. The biggest is crude oil prices, which have climbed 63 cents per gallon since the beginning of the year and have been trading at or near record highs in recent weeks.

In addition, a fire late last month at San Ramon-based Chevron Corp.'s El Segundo refinery shut down that operation, which was largely responsible for slicing state diesel production by 12.5 percent the last week of July.

Finally, these events have coincided with an increase in diesel demand, arising from the fall planting and picking of agricultural crops.

Dwelley Farms in Brentwood, which primarily grows sweet potatoes and green beans, has just begun ground work preparation for next year, the diesel-intensive tilling and ripping of soil.

"Fuel costs have gone up, so it reduces the bottom line," owner Mark Dwelley said. "It makes it more expensive, pure and simple."

Because agriculture is so competitive, he said that raising prices isn't an option. He'll simply accept lower profits.

Oakland-based AB Trucking, on the other hand, is scrambling to get letters to customers informing them that shipping fees are increasing.

"The attitude of the trucking community is take it or leave it, because otherwise we won't have the truckers to serve you," company President Bill Aboudi said.

Indeed, he said that several of the independent truckers who haul for him have refused to drive for now because their profits are disappearing down their tanks.

AB Trucking is now paying around $4 per gallon of diesel, because it relies on a fueling company that pumps directly into the company-owned trucks on its yard. That's about an 11 percent increase in the business' second-biggest expense -- a hard cost to swallow in an industry that makes a slim profit of 5 cents on every dollar of sales.

The good news is that California diesel spot prices fell 7 cents on Tuesday and production rose 2 percent last week, suggesting the slack in state supplies is increasing. In addition, Chevron has said that the El Segundo refinery should be running again next week.

Both factors could help nudge prices down. But gas prices never come down as quickly as they rise and the primary factor in the increase, the cost of crude oil, remains in record territory.

"It spiked almost 40 cents, do you think it will go down 40 cents?" Aboudi posed. "I don't think so, bud."

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Copyright (c) 2005, Contra Costa Times, Walnut Creek, Calif.

Distributed by Knight Ridder/Tribune Business News.

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CVX,

Source: Contra Costa Times (Walnut Creek, Calif.)

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