Surge in diesel costs pinches firms, boosts prices
Motorists squeezed by the high price of gasoline can take comfort in at least one thing. They're not buying diesel.
Diesel fuel has surged above $4 a gallon in New England, rising nearly three times as fast as gasoline prices over the past year, according to the US Energy Department. The average retail price of diesel hit $4.12 a gallon in New England this week, up 46 percent from last year. Gasoline, at $3.28, was up 17 percent.
The soaring prices are hammering truckers, farmers, construction companies, and other firms that need diesel to fuel equipment and vehicles. At Tighe Trucking Inc. in Woburn, which owns and operates 65 tractor-trailers, fuel costs are up more than $1 million from a year ago, said executive vice president John F. Tighe II.
"We don't see any relief on fuel," Tighe said. "I see it getting worse before it gets better."
That means consumers will pay more. Tighe Trucking, for example, transports food and other consumer products to supermarkets and retailers. While absorbing a large share of higher fuel costs, the 146-year-old firm still has had to boost overall shipping charges by 20 to 40 percent over the past year, Tighe said.
The result: even higher prices on supermarket shelves. Food prices, driven by record crop prices, have risen recently at the fastest rates in nearly two decades. Shipping accounts for about 4 percent of retail food prices, according to the US Department of Agriculture.
"There's no doubt higher transportation costs are a major contributor to the higher cost of food," said Kevin Griffin, publisher of the Griffin Report of Food Marketing, a monthly trade publication. "It's adding fuel to a fire that's already burning."
It's also requiring companies to find ways to cut diesel consumption. Friendly Ice Cream Corp. of Wilbraham, for example, is making its own biodiesel from waste cooking oils from its restaurants. The cost: about $1.75 a gallon.
Last year, Friendly's processed about 5,000 gallons of biodiesel at a Chicopee facility. This year it aims to make about 35,000 gallons, or about 5 percent of the diesel used by its trucks each year.
"This is really an experience for us," said Tony Almeida, the transportation manager. "It seems like every other day diesel prices go higher."
Crude oil prices, holding above $100 a barrel, represent the main reason that diesel prices, as well as gasoline, have soared. Diesel, historically, has often cost less than gasoline. But today, it not only costs more, the spread between the fuels has never been greater.
Last week, a gallon of diesel averaged 87 cents more than gasoline in New England, compared to just 6 cents more a year earlier, according to the Energy Department.
The widening gap is the result of global demand for diesel and limited refining capacity, particularly in the United States, where refineries primarily produce gasoline, analysts said. In the past, the United States could rely on diesel imports from Europe to offset its refinery constraints. But European passenger vehicles are increasingly equipped with higher mileage diesel engines, soaking up supplies that might otherwise have been exported to the United States.
Burgeoning Asian economies also are consuming more diesel. Meanwhile, there's little incentive for US refiners to reapportion capacity to produce more diesel since the market here remains relatively small. Few cars in the United States run on diesel, compared to about half in Europe, said Mary Novak, energy economist at Global Insight, a Waltham forecasting firm.
"Our refining system is tuned to produce gasoline because it's the most popular product," Novak said. "Is anything good going to happen for diesel? Not in the short term."
US stocks of diesel and similar products, known as distillates, are at their lowest levels in three years, and Global Insight forecasts retail prices will stay near $4 a gallon at least into the summer. That's hardly good news for truckers, farmers, or the economy.
Brian Souers, owner of Treeline Inc., a small trucking company in Lincoln, Maine, north of Bangor, said he's paying $13,500 more per week for diesel than he did a year ago. As a result, Souers, who employs about 45 workers, has left three jobs unfilled.
Nationally, $4-a-gallon diesel is sparking protests by independent truckers, who see record fuel prices gobbling their earnings. They've descended on state capitals in big rigs to seek help, and traveled in slow moving convoys on major highways, snarling traffic to call attention to their plight.
Laurence Harper, an independent trucker from West Enfield, Maine, also near Bangor, said his diesel costs have nearly doubled in a little more than a year. It now costs him $400 in fuel to haul logs on his 395-mile route. His payment for the load: $600.
"I've got truck payments, and insurance payments, and I've got to feed my family," said Harper, 61. "To be in business at the end of the year, it's going to take a miracle."
In Sherborn, Mass., farmer Alex Dowse is hoping for his own kind of miracle: a harvest good enough to cover rising energy costs. Dowse, whose family has owned the Sherborn farm for more than 200 years, currently about 130 acres, estimated he's paying around $2 more per gallon to run his three diesel tractors. His apple trees have yet to blossom.
"If we have heavy rains in May like we did last year, or some other setback," said Dowse, 60, "I'm not going make that money back."
Robert Gavin can be reached at rgavin@globe.com.
