2 min
Diesel rarely gets the same public attention as gasoline, but its price can reverberate across almost every part of the economy. Global diesel prices have climbed to record levels amid significant supply disruptions, putting additional pressure on trucking, agriculture, manufacturing and the movement of goods. The impact is raising an important question for businesses: When does a fuel-price spike become a genuine supply-chain problem? Dr. Chris Caplice, founder and director of the MIT FreightLab at the MIT Center for Transportation and Logistics, says the freight industry has spent decades developing mechanisms to manage fuel volatility. But that doesn't mean every carrier experiences the impact equally. “Smaller carriers not only have older equipment and are not getting fully reimbursed, they also have cash flow challenges.” Caplice notes that fuel surcharge programs help shippers and carriers share the risk of changing diesel prices. However, carriers must pay for fuel immediately while surcharge payments can arrive 30 days or more later — creating particular pressure for smaller operators. Dr. Chris Caplice serves as the Executive Director of the Massachusetts Institute of Technology’s Center for Transportation & Logistics (CTL) where he is responsible for the planning and management of the research, education, and corporate outreach programs for the center. View his profile The consequences can extend well beyond the trucking company. According to Caplice, every 20-cent-per-gallon increase in diesel costs a shipper approximately three to four cents per mile. Rather than immediately redesigning supply chains, companies are more likely to look for operational efficiencies, including increasing truck utilization or shifting freight to intermodal transportation where practical. So, what should businesses be watching? Small-carrier vulnerability: Sustained fuel costs could create significant cash-flow pressure and contribute to some smaller trucking companies exiting the market. More efficient freight: Companies may increasingly focus on fuller loads, better utilization and other measures that reduce unnecessary miles. Intermodal opportunities: Higher trucking costs could make shifting appropriate freight between truck and rail more attractive. Electric trucks: Persistently expensive diesel could strengthen the economic case for electric Class 8 trucks in some applications. The six-month question: Caplice suggests duration matters. If elevated diesel prices persist for six months, businesses may have greater reason to view the situation as something more significant than temporary volatility. The broader freight network has considerable capacity to adapt, Caplice says. But the longer high diesel prices persist, the more important efficiency, carrier stability and transportation strategy become for companies trying to manage costs and maintain resilient supply chains. Dr. Chris Caplice is founder and co-director of the MIT FreightLab and Executive Director of the MIT Center for Transportation & Logistics. His research focuses on freight transportation, procurement, planning, performance and infrastructure. If you’re interested in speaking with Dr. Caplice about rising diesel prices, freight transportation and what sustained fuel costs could mean for supply chains, simply click on his profile below to arrange an interview today.
