Milling & Baking News - May 15, 2012 - 20

Transportation and Distribution 

Peaking fuel prices push grain, freight shipping costs higher
uel prices again are a major factor keeping transportation costs high even with crude oil futures prices dipping to their lowest level of 2012 last week. Diesel fuel prices have eased 2% since mid-April and were down 1% from a year-ago but still were contributing to multi-year high rail and truck fuel surcharges gradually reﬂecting the peaking energy prices. Meanwhile, overall rail and truck tonnage volumes have continued to climb — which economists say suggests improving economic conditions — although grain tonnage is down from a year ago and truck freight tonnage is growing at a slower pace than in 2011. Rail grain shippers, though, are coming off one of their best performance periods over the past winter due to lower volume and mild weather. Rail needs, though, are expected to rise in the 2012-13 marketing year with signiﬁcant increases to 2012 U.S. wheat and corn production forecast. The U.S. average on-highway diesel fuel price the week of May 7 was $4.057 a gallon, according to the Energy Information Administration (E.I.A.) of the U.S. Department of Energy. That value was down 9c a gallon, or 2%, from the 2012 high of $4.148 a gallon the week of April 9 and was down about 5c, or 1%, from $4.104 a gallon a year ago when diesel prices were coming off their weekly 2011 high of $4.124 a gallon the ﬁrst week of May. The onhighway price recorded April 9, 2012, was the highest since $4.207 a gallon in mid-August 2008 but still was about 62c, or 13%, below the record high of $4.764 recorded in mid-July 2008. In its April Short-Term Energy and
20 / May 15, 2012 Milling & Baking News

Summer Fuels Outlook, the E.I.A. forecast diesel fuel prices to average $4.15 a gallon in 2012, up 31c, or 8%, from $3.84 a gallon in 2011. Third- and fourth-quarter 2012 prices were forecast to average above $4.20 a gallon compared with $3.87 in 2011. Last week in its revised May Short-Term Energy Outlook, the E.I.A. reduced its forecast 2012 average diesel price by 9c, to $4.06 a gallon, and dropped third- and fourth-quarter projections to $4.09 and $4.10 a gallon, respectively, reﬂecting “falling global crude oil prices over the past month.” Diesel prices impact users of trucking and rail service speciﬁcally through surcharges, which may be signiﬁcant. While fuel surcharges allow railroads, independent truckers and trucking companies to maintain proﬁt margins and keep freight rates stable, the charges increase the cost of shipping paid by the buyer or the seller. Anecdotal accounts indicate fuel surcharges in place for tractor-trailer rigs have surpassed 50c per mile in some cases during the past couple of months. Unlike railroads, there is no

standardized formula for trucking fuel surcharges, in part due to the large number of independent owner-operators, so the charges can vary widely. “In many cases, trucking companies and owner-operator independent drivers are not able to pass on the full increase in fuel costs to shippers due to existing contracts, competition and the need for backhaul cargo to cover at least some of the costs of operation,” the U.S. Department of Agriculture said in its most recent Agricultural Refrigerated Truck Quarterly covering the fourth quarter of 2011. Fuel surcharges for farmers or grain companies marketing their own grain with their own trucks also do not come into play. The U.S.D.A. said the average truck rate for produce shipments in the fourth quarter of 2011 was $2.29 per mile, up 8% from the same period a year earlier, while diesel fuel prices in the quarter averaged $3.86 a gallon, up 22% year-over-year. Fuel surcharges for railroads, which have been in place since at least 2007, are generally more structured than for

Modal share summary – 5-year average
Rail Barge Truck

26% 63% 11%

14% 14% 72%
Wheat

25% 55% 20%
Soybeans

Corn
Source: U.S. Department of Agriculture

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Milling & Baking News - May 15, 2012

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