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What the Increase in Fuel Prices Means for the Transportation Industry

What the Increase in Fuel Prices Means for the Transportation Industry
The increase in fuel prices has taken a negative toll on every industry, but the transportation industry has been hardest hit

If you drive a car, you’ve most likely cringed at the gas station more times than you can count. Increase in fuel prices put a strain on most American wallets. Around 84% of Americans report cutting back on spending in response to the price surge. But the increase in fuel prices can affect more than your daily commute cost. Higher fuel prices also mean increased costs for the transportation industry, which has ripple effects on logistics, shipping costs, and consumer prices.

Keep reading to learn more about the impact of rising fuel prices on the trucking industry, and how that affects you.

Why are gas prices so high in 2022? Increase in fuel prices explained

The greatest factor behind rising gas prices is the rising price of crude oil, which has been steadily climbing since October 2021. Demand for gas bounced back to pre-pandemic levels near the end of 2021, but supply didn’t keep up. In February 2022, Russia’s invasion of Ukraine and the resulting global sanctions further exacerbated the already increased prices. Previously, the United States obtained 21% of its gasoline and refined petroleum from Russia.

Another less talked-about factor is the cost of refining crude oil. Crude oil needs to be processed by an oil refinery before it becomes gas or diesel, and the United States is currently facing a refinery shortage.

Oil refineries in the United States have been on the decline since the beginning of the pandemic, and three U.S. refineries have closed their doors since 2019. The current refinery capacity is at the second lowest its been since 2014. Now, refineries are working around the clock to keep up with current demand. Until more refineries reopen their doors, the price of fuel is likely to remain high.

a chart showing the rapid increase in fuel prices over the last 18 months dating back to early 2021

Why are transportation costs increasing? The impact of the increase in fuel prices

It’s simple logic. When one price goes up, others follow.  In April 2022, the national average diesel price was $5.14 per gallon, more than $2 more than it was in 2020. The transportation industry thrives on gas and diesel. So, when shipping and transportation companies pay more for fuel, they pass the price onto the recipient to avoid taking a loss.

Most trucking companies apply a fuel surcharge to cover the inflated fuel price. The average fuel surcharge has increased 42% for LTL companies.

What’s more, when fuel prices are higher, carriers might limit the area they serve. It may not make sense to extend a service area or continue serving certain areas that are not cost-effective. This means that service areas for trucking companies might change based on the increased oil prices.

Does an oil price increase affect only the transportation industry?

While increased fuel prices directly affect transportation, the price of fuel can have a domino effect on the global supply chain. One domino falling can trigger another, so increasing transportation costs can ripple throughout other industries.

When a recipient pays more to ship a product, they may raise their prices to reflect that, passing the increased cost on to the end consumer. This can contribute to product inflation, particularly for products that require special shipping, such as refrigerated or heat-sensitive items.

Alternative fuel sources might ease the burden

Increased oil prices have driven conversation on the importance of alternative fuels for transportation. Several alternative fuels are currently available for trucks, and many are more environmentally friendly than gas and diesel.

Moreover, electric semi trucks and big rigs are beginning to emerge into the industry, though their steep price point prevents many trucking companies from implementing them. But logistics is one of the most fast-paced industries on the planet, and more alternative fuel sources for freight transportation are likely to emerge as the industry continues to evolve.

Who is one of the best trucking companies in RI?

Rising fuel prices can hit small businesses particularly hard. But a solution to stay afloat through the storm is partnering with a dedicated logistics provider. A logistics provider can help you find the best possible price for shipping solutions, allowing you to lower your overhead costs and keep your prices low for your customers. If you’re in the Rhode Island area, N&D Transportation Company, Inc could be the Northeast transportation company you’re looking for.

With over 50 years of combined experience in the trucking industry, we’ve helped our customers survive fluctuations in the economy before, and we’ll also help them through this one. We offer direct distribution throughout the New England area and nationwide shipping through the help of our partner carriers.

We’ll work with you to find the most cost-effective solutions for your shipping needs, allowing you to focus on other aspects of running your business.

Give us a call to learn more about how we can help you.