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What Rising Diesel Prices Mean for the Industry

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Diesel prices in the U.S. began dropping in February and continued to plunge as the spread of COVID-19 forced Canada and the U.S. to shut down, hitting a low of $2.392 per gallon in May. The industry felt the impact of these dropping prices, as carriers were forced to adjust contract rates and deal with lower fuel surcharges.


Recently, things have begun to finally stabilize for the transportation and logistics industry. Diesel prices have been steadily rising each week since June, with data from the Energy Information Administration (EIA) showing that prices have been increasing for seven consecutive weeks.


The national average for retail diesel price was at $2.438 per gallon for the week ending on July 10, a slight increase from last week’s level. While diesel prices are still below last year’s average, the rising prices are good news for the transportation industry as it suggests demand is picking up.


The economy in the U.S. and Canada has been ramping up in recent weeks due to loosening COVID-19 restrictions, resulting in tighter capacity and increased demand for carriers. All signs seem to suggest the industry is recovering, albeit slowly.


As the economy reopens, COVID-19 case numbers have been on the rise. While Canada has been mostly successful in reducing the spread, the U.S. has seen a spike in case numbers, hospitalizations, and deaths. There have now been more than 3 million positive cases and more than 130,000 deaths in the U.S. from coronavirus. Many of the major distribution hubs have been hit the hardest, such as Florida, Texas, California, New York, and Michigan.


A second wave of the pandemic in the U.S. could see diesel prices dropping again, which would once again influence contract rates. If economies slow down, refineries will likely switch back to making more diesel than the market can handle, causing prices to plummet like before with excess supply grossly exceeding demand.


Fuel prices are likely to be in flux until COVID-19 is finally under control and jet demand increases. Until then, shippers should brace themselves for changing rates and keep a close eye on the market.


The good news is that the transportation and logistics industry has proven to be resilient and has already successfully weathered the early challenges the pandemic presented.