Skyrocketing fuel prices due to the Iran war are fanning the embers of transportation costs, which were already rising due to a shrinking pool of drivers in the US.
Trucking operators saw diesel prices spike by almost 50% since the start of the US-Israel war against Iran at the end of February. Haulers have responded by raising the weekly per-mile fuel surcharge paid by shippers to its highest since 2022, according to Truckstop.com data.
Those surcharges come on top of a months-long increase in truck-equipment rates, which are charged to move goods around the country and are higher in part due to trucker shortages. Employment in the industry has tumbled since peaking during the pandemic reopening rush and is now the lowest since September 2020.
Although transportation costs represent a relatively small portion of the final price consumers pay for goods, the surge in shipping expenses risk adding to inflationary pressures. March data due Friday is expected to show the biggest annual increase in consumer prices in two years.
With a shrinking pool of workers and now the surge in fuel costs, transportation firms are dealing with a double hit. A crackdown on certain foreign holders of commercial driver's licenses due to safety concerns is contributing to the tighter market for truckers, said Jason Miller, a supply chain professor at Michigan State University.
The Institute for Supply Management's gauge of prices paid for services and materials rose by the most in March in almost 14 years, mostly because of the increase in fuel costs, Steve Miller, chair of the ISM Services Business Survey Committee, said Monday on a call with reporters.
Trucking companies generally operate on small profit margins, so fuel price increases are typically passed along because they can't afford to eat those costs, said James Peoples, an economics professor at the University of Wisconsin-Milwaukee who studies transportation.
"You're going to see just about across-the-board commodities affected by the high fuel cost or high transportation costs," Peoples said.
The US Postal Service plans to raise prices to offset rising transportation expenses including the cost of fuel, an unusual step for the agency. Companies like United Parcel Service Inc. and FedEx Corp. commonly use surcharges to offset higher fuel costs.
The last time diesel prices were this high, the annual increase in the cost to transport and warehouse goods topped out at nearly 22% in May 2022, according to the government's producer price index data. That same month, prices of consumer goods were up more than 13% from a year earlier.
Each dollar increase in diesel results in about a 20-cent hike in surcharges, according to Michigan State's Miller.
Diesel powers nearly every industry and is the trucking industry's second-largest expense after driver pay, accounting for about a fifth of operating costs, according to Bob Costello, chief economist at American Trucking Associations.
Costello said transportation costs are relatively small percentage of goods prices, but a pickup in prices for everything from groceries to clothing to big-ticket items risks causing inflation-weary consumers to pull back on discretionary spending.
"We can adequately predict anything that travels, whether it's over the road in the US or ocean freight, it's going to increase,"Susan Spence, chair of the Institute for Supply Management Manufacturing Business Survey Committee, said on a call with reporters Wednesday after the group's released its March factory data.