Gasoline prices are rising almost daily, pinching the wallets and wallets of nearly every American with cars. However, as bad as this news is, diesel prices are rising even further across the country. Retail diesel prices at truck stops hit a new record high of $5.32/gallon today. Since February 1, national truck diesel prices have increased by $1.57/gallon. For an owner-operator whose truck gets 6.5 miles per gallon, that equates to a cost increase of $0.24 per mile.
The importance of diesel for our economy
For many Americans (including politicians), diesel prices are so far removed from their version of reality that they often dismiss the importance of diesel to the US and global economies. However, diesel is the fuel that drives the economy and leaves large industries vulnerable to cost shocks.
Without diesel fuel, the US economy would collapse within days. Our supply chains would shrivel up completely, almost overnight.
Trucks use it to transport our goods across the country. Of all Class 8 trucks (the big ones), 97% use diesel. No, Elon Musk is not going to save us here. When Tesla announced the Semi in 2017, Musk predicted that more than 100,000 would be produced by 2022. Today there are fewer than 20, mostly prototypes.
The trains also depend on diesel to transport products across the country. Almost all trains in the country depend on diesel for power.
Even a large part of our electricity is indirectly powered by diesel. More than one-fifth (22%) of our electricity in the United States comes from coal. Diesel-powered trains transport coal to power stations across the country.
Diesel is also critical to our imports and exports, as 80% of ships transporting products across the ocean are powered by diesel.
A world without diesel would mean that our grocery stores and restaurants would run out of food, retail store shelves would be empty, and hospitals would run out of medical supplies. But that’s only scratching the surface.
The importance of diesel for agriculture
Farmers use diesel to power most of their machinery. According to the Diesel Technology Forum, diesel is essential for the agricultural industry:
One of the reasons that American agriculture is one of the most productive and economically valuable in the world; producing more yield in less time with fewer inputs is thanks to advances in machinery and equipment that plant, harvest and tend the land. Today, diesel engines power the majority of agricultural equipment in the United States and around the world needed to plant, grow, and harvest crops and transport them to market or for processing, and then ultimately deliver to the consumer.
Diesel engines power more than two-thirds of all agricultural equipment, transport 90% of its produce and pump one-fifth of its water in the United States. Ninety-six percent of the large trucks transporting agricultural products to railheads and warehouses are powered by diesel engines. One hundred percent of the freight locomotives, river grain barges and ocean vessels that deliver these products to domestic and overseas markets are powered by diesel.
In the agricultural sector, there is no cost-effective substitute for diesel engines with the same combination of fuel efficiency, power and performance, durability and reliability. Diesel dominates the entire ‘agricultural supply chain’ – plant the product, take care of the cultivation (watering, fertilizer and pesticides), harvest the product and even bring the product to market by truck, train or boat. Farm tractors, combines, irrigation pumps and other equipment are the workhorses of an industry vital to our national economy and quality of life.
Almost all fishing boats in the world use diesel for power. Without diesel, our fishing food supply chain would collapse.
The importance of diesel for the industrial sector
Diesel also powers the construction industry. From the Diesel Technology Forum:
About 850,000 diesel-powered vehicles are used nationwide to transport supplies, materials and workers to and from US construction sites. Earth-moving machinery, bulldozers, bucket loaders, backhoes, cranes, pavers, excavators and graders are all essential to building and expanding our economic infrastructure. For most of these machines, there is simply no substitute for diesel. No viable alternative has yet emerged for equipment exceeding 500 horsepower; some construction engines produce several thousand horsepower.
Since diesel fuels the industrial economy, recent price spikes will put additional inflationary pressures on the US economy – in sectors that have already seen unprecedented inflation – transportation, agriculture and construction.
But that may be less damaging than the destruction of demand that can come with price spikes, especially in transport and construction.
If you want to know more about the recent diesel price spike, check out this article which explains how we got here and why diesel prices are likely to remain inflated for some time.
Sign up today for the Future of Supply Chain #FOSC22
Leading supply chain voices will travel to Rogers, Arkansas, May 9-10.
*Limited time pricing available.