When you fill up, you may be glad your car doesn’t run on diesel. But much of the American economy does: Tractor-trailers, delivery trucks and farm combines rely on it, and higher diesel costs can eventually lift prices at supermarkets and warehouse stores.
Here’s how diesel’s rising price can reach consumers, even if they never buy a gallon themselves.
Diesel Powers More Than Trucks
Only about 3% of passenger vehicles use diesel, mostly pickups, SUVs and used import sedans. But 76% of commercial vehicles use it.
“Diesel is the workhorse fuel of the economy,” said David Ortega, a food economist at Michigan State University. “Semi-trucks, freight trains, barges, and farm machinery run on it. Most consumers never buy a gallon of diesel, but almost everything they do buy moved on diesel at some point, often several times, between production and the store shelf.”
Diesel Prices Have Climbed Sharply
A gallon of diesel averaged $6.30 on Oct. 7, up from $5.90 a month earlier and $3.68 a year earlier, according to AAA. The price was just below the record of $6.53, set Sept. 22.
Diesel was even more expensive in California, a major producer of dairy, nuts, grapes, lettuce, strawberries and other crops. A gallon cost $8.35 there on Oct. 7.
Fuel prices are rising broadly because of the Iran war, which has constricted tanker traffic through the Strait of Hormuz and prompted attacks on refineries and infrastructure in the Persian Gulf. Attacks on Russian refineries in the Ukraine war are another factor. Heavy global demand, steep excise taxes and other factors also push diesel costs higher.
Higher Fuel Costs Hit Farms and Food Shipments
For farmers, the surge comes during fall harvest, when combines, tractors, grain carts and trucks run long hours moving crops from fields to storage and elevators, Ortega said.
A combine harvester operation uses about 300 gallons of diesel a day. In California, that’s roughly $2,500 worth of fuel.
Wayne Gularte, who grows crops on 600 acres near Gonzales, California, told Reuters his fuel costs were up 40% this year, from roughly $5 a gallon to $7. To cut costs, he put a gas-powered tractor from the 1950s back into service.
Nationwide, farm fuel costs for corn have risen by $18 per acre, or 82%, from last year; costs for soybeans are up $11 an acre, or 79%, said Michael Langemeier, a Purdue University economist.
Diesel prices are up about 75% from a year ago, but only a fraction of that increase is expected to reach store shelves. Fuel used to transport and store food accounts for 4% to 7% of its total cost, said Bernhard Dalheimer, a Purdue agricultural economist. The share can be higher for some products.
A truckload of potatoes going from Idaho to Chicago costs 40% more to move than a year ago, and half of the increase is due to diesel, said Jason Miller, a professor of supply chain management at Michigan State University. Apples and pears from Washington State’s Yakima Valley, and lettuce and strawberries from California, face similar shipping costs, said Dean Croke, principal analyst at DAT Freight & Analytics.
Refrigerated produce, dairy and meat also require fuel to keep goods cold on the trip to stores, Ortega said. Shipping a truckload of lettuce from Salinas, California, to New York costs around $10,000, Croke said, including $4,200 for diesel. A year ago, the same fuel would have cost about $2,700.
Heavy Goods and Shipping Services May Cost More
Heavy, relatively inexpensive products are especially vulnerable because transportation makes up a larger share of what shoppers pay, Ortega said. The list includes bottled beverages, canned goods and household appliances. A nursery may also add a fuel surcharge when delivering a dump truck’s worth of mulch, Miller said.
Diesel fuel and heating oil are essentially “the exact same product,” said Alex Jacquez, senior vice president of policy, advocacy and research at the Groundwork Collaborative. Nearly 5 million households, mostly in the Northeast, still use heating oil, and its prices have risen sharply this year.
Shipping companies have raised fuel surcharges that change with diesel prices. UPS’s domestic ground surcharge rose from 25% on July 6 to 29.5% on Sept. 21 and 30.25% on Sept. 28. FedEx’s ground-service surcharge stands at 29.25%.
Higher diesel costs could also raise the price of gifts shipped for the holidays, Miller said. Retailers may pass along costs through higher prices or higher minimum-order amounts for free shipping.
When Could Consumers Feel the Increase?
Unless you buy heating oil or drive a vintage BMW, you probably won’t bear the full cost of $6.50-a-gallon diesel. The effect on a package of lettuce or a bag of potatoes may amount to pennies on the dollar, Miller said.
Fuel accounts for about 5% of the average supermarket price, so if shipping costs doubled, a $1 potato might cost $1.05. It can take months for price shocks to work through the supply chain.
Manufacturers and retailers often set contract prices annually, Miller said. The full effect of higher diesel prices might not arrive “for at least another six to nine months, minimum,” he said.
“Early on, much of the cost increase gets absorbed along the supply chain,” Ortega said. “But as contracts reprice and fuel surcharges take hold, more of that cost makes its way to the grocery store.”
Reporting by Daniel de Visé and Jennifer Borresen, USA TODAY. USA TODAY Network via Reuters Connect.
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