Strong Diesel Demand Keeps Prices Up

NEW YORK October 30, 2004; Robert Gibbons writing for Reuters reported that unless high prices slow the economy, high diesel demand helping to fuel record high retail prices should continue, Bob Costello, chief economist at the American Trucking Associations, said on Friday.

"We are really in the peak season right now, what we call the fall freight season," said Costello. "That will last through early December."

The U.S. average retail diesel price climbed 3.2 cents to a record $2.212 a gallon last week, up 72 cents from a year ago and the fifth week in a row that diesel fuel set a new high, according to the U.S. Department of Energy's statistical arm, the Energy Information Administration.

Drivers' group AAA's daily survey had the average U.S. retail diesel price at a record $2.246 a gallon, up 69.2 cents from a year ago and 21.6 cents higher in the last month.

But trucks in September were moving more tonnage, even in the face of the high prices. ATA's unadjusted tonnage index increased 6.0 percent compared to September 2003.

Without the hurricanes that hit the eastern and southeastern United States in September, the increase in tonnage moved would have been more, according to Costello.

According to the ATA, trucks hauled 9.0 billion tons of freight in 2003, 68.9 percent of tonnage carried by all modes of domestic freight transport.

Year-to-date, compared to the same period last year, truck tonnage is up 7.0 percent, according to ATA data.

The ATA tonnage index, based on membership surveys, dates back to the 1970s. The September data is preliminary and subject to change in the final report issued early next month.

Costello said that as of October 15, ATA data pegged U.S. diesel demand up 12 percent from the year-ago period, and year to date up about 5 percent.

"Diesel fuel cost is very important to this industry," Costello said. "It's the second highest expense after labor. This industry will pay over $8 billion more this year than we did in 2003.

"Fuel costs rank very high in total operating expenses, sometimes 20 to 25 percent for long haul carriers," he said.

"Luckily, it appears that fuel surcharges have become much more prevalent than in the past. Fuel surcharges help offset the cost, but not all of the added expense," he said.

Costello said that from trucking companies perspective, the economy is "better equipped to handle the price hikes than in the past. But with that said, it doesn't mean it doesn't have some impact. We're probably already seeing growth being shaved."

"In the future, growth will continue but just won't be as high, how much I don't know.

Costello does not expect diesel demand to be killed off by high prices near-term.

"Diesel isn't quite as responsive in terms of demand as gasoline. The goods have to be moved. The only way for diesel to take a big hit is if the economy turns south."

The American Trucking Associations is the largest national trade association for the trucking industry.