Rising fuel prices are affecting all aspects of our lives. They've probably discouraged many families from piling into the family truckster for an old-fashioned summer road trip. Many folks have turned to biking and walking for errands.
But for concrete producers, higher fuel prices present a more serious problem: Rising delivery costs are quickly eroding healthy operating margins.
Diesel prices jumped significantly between the first and second quarters this year. The U.S. Department of Energy predicts prices will average more than $2.80 for the balance of 2007 (see chart). These prices are 24 cents a gallon higher, on average, than its January forecast.
In the past, experts told us that fuel costs rise because of demand during the busy summer driving season. But this time, several factors have fueled the increase. “Refinery production issues have been a primary factor in the recent run-up in prices,” says Tavio Headley, economist for the American Trucking Associations. “Some of it has been planned maintenance in preparation for summer, and there have also been several accidents.”
High crude oil prices are also causing both gas and diesel costs to increase. “Oil isn't as high as last year, but it is still extremely expensive this summer,” Headley explains. “Underlying tension in the Middle East and Nigeria is contributing to a ‘fear premium' running throughout the market.”
More gasoline, less diesel
And since refineries have been struggling to keep up with production needs, they have created a situation which could be especially bad for diesel users. “As gasoline prices rise faster than diesel prices, refiners may find it more profitable to produce more gasoline and less diesel,” says Headley. This would lead to an even tighter diesel supply, and of course, higher prices.
Yet there is a bright side. While gasoline prices have hit a record high, diesel is not expected to break records this summer. (The record high for diesel was $3.16 a gallon in October 2005 after Hurricane Katrina struck.)
Higher fuel prices are here to stay. Responding to this challenge, equipment manufacturers are turning to their R&D departments for solutions. Most truck manufacturers are experimenting with diesel-electric hybrid technology, which can offer up to 35% fuel savings.
For example, Volvo is developing an entire diesel-electric line of Class 8 trucks for 2009. Oshkosh and Peterbilt also unveiled new hybrid vehicles last fall at the annual Hybrid Truck Users Forum (HTUF).
Hybrid technology in heavy-duty vehicles is gaining steam. The benefits —better fuel efficiency, less pollution, reduced maintenance costs, and longer vehicle lifetime—look more attractive as diesel prices climb higher.
If you don't want to wait for the new trucks, then you might consider a new software designed to reduce diesel sticker shock. ProMiles Software Development Corp. (www.promiles.com) provides data tracking tools for fleets. Its software includes tools for fuel tax reporting, fuel management, and fuel purchasing. It plans to release a new route mapping program for local drivers by the end of the year.
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