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Diesel and Detroit disruptions hit trucking hard and fast

Photo: Jim Allen - FreightWaves

Chart of the Week: Ultra-Low Sulfur Diesel Rack Price – USA, Outbound Tender Rejection Index – Detroit (SONAR: ULSDR.USA, OTRI.DTW)

Like an earthquake, the two major stories of the week hit trucking hard with the fallout yet to be fully measured as neither are fully resolved. The attack on Saudi Arabian oil production and the General Motors labor strike had an immediate impact to the freight market as wholesale diesel prices jumped $0.16/gallon on Monday (not including taxes), while outbound rejection rates spiked out of the Detroit market. Both events were quick and severe, but in the long run, several concerns for the trucking sector still exist.

Automotive Turmoil

On September 15 nearly 50,000 United Auto Workers (UAW) went on strike, which slowed the flow of parts from U.S. plants to General Motors (GM) facilities. The near-term impact was quick and somewhat obvious as carriers avoided the Detroit drama by rejecting freight movements in and around the area, anticipating long lines and delays at consignees. Some of these carriers are potentially union carriers who want to support the UAW, but that level of detail is not available in the data.

Detroit’s August automotive production has grown 6.7% since last year with 153,210 units. Image: SONAR Auto production tree map

Detroit is the largest producer of domestically produced consumer vehicles in the U.S. and GM is a big part of that market’s economy. There are many parts manufacturers in the area that supply the assembly plants that move on trucks.

Earlier in the week U.S. based Martin Transportation Systems temporarily laid off approximately 100 Canadian employees in relation to the strike as it hauls freight for GM between the U.S. and Canada facilities. All these outcomes are short-lived, but the implication for the coming months are still awaiting the results of the ongoing negotiation, which at the time of this article were still ongoing.

The automotive sector represents under 2% of the total market share value of goods being moved via surface transportation in the U.S. including rail. That does not include the raw materials such as metals that are moved prior to production, however. It is a much larger portion of the for hire dry van carrier market which excludes most of the energy commodities such as gas and oil.

The real issue is sudden change. Trucking operators are typically not flexible as operations require some level of consistency to remain efficient and competitive. The cost to shift focus is typically too great to overcome for carriers who typically operate around a 5% operating margin.

Niche markets such as auto parts haulers are specialized in a relatively small amount of lanes hauling on a strict schedule reliably. Their overhead costs are also adapted to a higher paying type of freight as most of the automotive sector operates on just-in-time processes, where product arrives close to the time of assembly and is not stored for long.

Diesel Price Uncertainty

The attack on Saudi Arabian oil facilities caused wholesale prices of diesel to jump on Monday, which will compress carrier margins who buy off the “rack” and base their fuel surcharges on the Department of Energy’s (DOE) Monday release of the average retail price of diesel.

The DOE number is not as reactive as the wholesale or rack price, which responds rapidly to spot market prices on the commodities exchange. Over time, they do approach each other, but rapid changes will increase or decrease the spread between the two values. Rapidly increasing wholesale prices has an adverse effect on carriers as the pass-thru cost is based on the slower moving retail number.

The net impact to carrier’s based on a 6.5 mile-per-gallon average is roughly 2.4 cents per mile of margin compression. This amount does not seem substantial, but when carriers are only making $0.01 – $0.02 for every dollar spent, every penny counts.

In the long run there are potential pros and cons to the recent event. One pro is increased demand for American oil, which will stimulate the domestic economy. Foreign countries, who were using Saudi oil, are now aware of the vulnerability of the infrastructure to attack, which will force them to consider alternative sources.

The con is the fact diesel is still exposed to oil market volatility due to speculation. More uncertainty over supply, means there is more potential for violent price swings impacting carrier cost structures.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

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  1. Steven

    Let’s focus in our field:
    30 plus years ago a fresh graduate truck driver would enter at his first job with zero experience somewhere around $15 per hour.
    What is today entry level for same example?

  2. Art

    So if GM decided to close a plant or two, what can the union do?
    And the laid off workers would not get a refund of their dues.
    Unions… useless.
    Let supply and deman do its work.
    If the work is in demand, wages rise.

  3. John. Gunnerson

    Wtf does obama or muslims or liberal or gm bailout have do with any thing Trump is the one scewing you royally aii he has done is caused doubled budget annual deficit to one trillion that was benefit the richest people in the country and screw the rest with his constant meddlind

    1. Hagar

      How many of the presidents before our current one has raised our debt by doubling it ???
      Come on now and please be Honest with that number!!!
      To me Americans need to demand that we stop financially supporting over 70% of every nation on Earth and pay our debt and also the debt Washington owes Social Security first.

  4. Blane

    Unions are a canker on society. They are always disrupting the free flow of the market, they are always corrupt, they are always giving money to elect communist (aka Democrats) and they are always wanting a false (not based on the market), over inflated wage, for their b!+#@$$ crybaby workers. Unions should be destroyed.

    1. Hagar

      You obviously haven’t worked with a company that works with good and fair union. I’ve worked for both sides. Management/partial ownership (factory that employed just under 100 workers). Then worked as a union employee for Coca Cola Bottling Co of NYC.
      Both have their rewards and restrictions. But unions as a whole are given a bad reputation for the minority of them that are just as corrupt as most elected officials in our nation. That goes for both sides of the aisle too. Lifelong politicians are well controlled by the “corrupt”lobbyists of corperate America. This is widespread to actually be compared to a cancer. Just look at big Pharma. and other commodities (Coca Cola being one of hundreds).
      Now the job I held with Coke was a tractor trailer driver. I hauled soda out of two Bottling plants in NYC metro area. Delivered to Coke satellites where it was put on the delivery trucks. The volume in 1992 when I started was roughy 550,000 cases per day. Now it’s over 700k. I assure you, its not a job for every driver. Driving in this area of congestion, traffic road ragers etc takes true professionals.
      So did I make a crazy living? If you call 50-65k per year way too much for a measly tractor trailer driver, then yes you’d call it crazy. Also had excellent healthcare (they still do today)
      Can Coca Cola afford this? If you even think they cannot your fooling yourself. But I can assure you,if it were not for our union protection, we’d be paid likely about the same as a Coke driver thats non union in Ohio or Ga Fl etc. a huge difference to say the least. Yes some of the Drivers in NYC take advantage of union protections. But their #s are small nowadays compared to the workforce there.
      To just throw a blanket over all union jobs and say we are/were lazy crooks is showing your lack of real knowledge of the need for some protections from the proven greedy corporations of today. There needs to be fairness to both sides
      This should also be set between the price gouging companies and consumers too
      Of course this is only an opinion of mine (and many knowledgeable workers like me).

    2. Ty

      Wex, American need more Union in the work places. So many American companies make billions in profits but give cents to their workers for a raise but yet, cost of living goes up every year $10,000 or more.

  5. Chris

    America is self sufficient on oil.
    Diesel is a bi protect of petroleum so all this is hype. As for GM and unions its BS,they are some of the highest paid workers in America and yet they won’t more.
    What did there beloved leader say “ how much money does one need “.
    We Americans bailed out GM with our tax $$$$$ then they gave back millions of $$ to muslim obama campaign. Yet they won’t more.

    1. Dennis Pressley

      I agree 100 percent in both cases
      General motors employees owe the tax paying America citizens for their jobs, a bailout that shouldn’t have happened to start with. I’ll never buy a general motors product again.

      1. Truckguy

        I love it when people say “the bailout shouldn’t have happened.” With financial markets frozen, the only entity able to pick up the pieces of a bankrupt GM would have been a foreign government (China). Even a group of billionaires would have been unable to raise enough liquidity to purchase assets at the time.

        PS. Obama wasn’t a Muslim.

    2. Hagar

      The debt GM & Chrysler we the taxpayers loaned to them has been repaid and with interest.
      Yes we could be self sufficient on our oil here. But oil is a commodity that gets sold to the highest bidder. If the world were to land in an oil crisis, not only would the price dictate where oil went. To think we would just keep all of our oil for Americans uses is very very unlikely to happen.
      After GM has paid back the bailout loans, they’ve had record profits. In my opinion they should share those with the workers who in the past have given back benefits to help GM along with countless jobs being now “Pert Timers” who do not build retirement or the same health benefits.

      1. Ben

        You may want to fact check yourself, the money has not been paid back in full to this day (let alone with interest) and never will be as the bankruptcy court closed this case years ago.

Comments are closed.

Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.