Diesel Does Damage to the Economy

The price of everything appears to be rising day by day. It's not just gas, but food, electricity, postage stamps, paper products, building materials-everything! Part of this is surely the loss in value of the US dollar. But a bigger cause of this impending economic fiasco is the cost of oil, and in particular, diesel. Diesel fuel is the fuel of transportation systems all over the world. And for some strange reason, diesel cost is almost a dollar higher per gallon than the cost of gasoline.

This higher diesel price has never been explained with any kind of believable explanation: diesel is a low-end product of refining-it requires far less refining than gasoline. Therefore, it has historically until the last very few years remained a cost -effective fuel for powering the engines of transportation. The explanation we have heard for several years is that there is higher demand for heating oil in the North East. Somehow, while hearing constant complaints of global warming in July, that story doesn't quite have the ring of truth one would expect. Obviously, the price of diesel has risen far out of proportion to the cost of crude oil. Why?

Much of the cause for the runaway fuel prices, according to OPEC and some in Congress, is futures speculators driving the price higher and higher in search of increased profits. OPEC is not happy about this situation either as members realize the severe damage it can do to the economies of their customers-like the United States. Something must be done to stop this kind of selfish, world-devastating behavior as the high price of oil hurts us all. The high price of diesel hurts us in more secondary hidden ways and may destroy much of the world economy in short order. It's obvious that the big financial wizards behind this speculation bubble are well aware that most people have no idea how vital to our economy the price and availability of diesel are. They are no doubt counting on this lack of knowledge to drive diesel fuel costs far beyond the cost of gasoline. The fact is, everything we transport except people in their personal vehicles is delivered using diesel as fuel. And even then, the gasoline you purchase to fill up your tank was delivered to the gas station in a truck fueled by diesel.

Ships, trains and trucks all burn diesel fuel. The UPS package delivery truck-the little brown one that comes to your house-burns diesel. Even most of the smaller box trucks that make the local deliveries from the furniture showroom or appliance dealer to your home use diesel. Mail is delivered to your local post office in a diesel-powered truck. If you choose to save gas and take the train, locomotives other than the electric in-city or subway systems burn diesel, as does the Greyhound and the average city bus and your child's school bus. About the only form of mass-movement not using diesel is air transportation and very little freight is moved by air. You cannot escape the importance of diesel in maintaining your standard of living.

Many of the common products we use on a daily basis: plastics, fertilizer, pesticides, synthetic fabrics, etc are all petroleum based. Overall oil prices have brought up the cost of manufacturing these things as the cost of crude oil has quadrupled. But all of these products, both as raw materials and as finished goods, are moved via a transport method burning diesel so there is a doubling effect due to high oil prices. Manufacturers are loathe to raise prices as this cuts sales, but they have been forced to institute increases to cover the cost of manufacturing. This is a direct cost and causes a flood of red ink on the balance sheet if products are not priced appropriately. They have already raised prices due to materials costs, and they are already paying for far more transportation as so many goods and materials are shipped from out of the country. Therefore, they are very reluctant to pay an increasing amount for the cost of diesel to transport the finished products. Fuel costs now often exceed the cost sale price of the item. The trucker, particularly the small owner-operator, is stuck attempting to negotiate a reasonable price to cover the increases in his cost against a hostile customer. And, as the cost of fuel is the largest operating expense he has, his costs have sky-rocketed!

In a balanced economy, the amount of available trucks would closely match the amount of freight needing to be moved. However, our economy has tanked quite sharply in the past two years, leaving an excess capacity of trucks. At the same time, the railways have been surreptitiously aided in expanding capacity to haul freight. This exacerbates the surplus of trucks. As the larger companies are in a better position to negotiate large contracts, the small owner-operator is forced to run his operation in the red in order to even keep moving. Bankruptcies among independent small company and solo owner-operators have skyrocketed in recent months. An AP report today showed that the number of trucks licensed in the state of Nevada has dropped by 12% this year alone-and Nevada isn't a huge trucking state. Small business truckers simply cannot hold on any longer and are losing their homes and their retirement funds along with their trucks. Larger companies are also cutting the number of trucks they have on the road, but few of them publicize the fact. Instead of laying off drivers, they simply let them sit, unpaid, until they quit in desperation. This saves unemployment insurance costs and also skews unemployment figures downward. They are also attempting to convert much of their driver force to owner-operators, thus passing the increasing costs onto them as independent businessmen.

The recession in trucking is far worse than any figures will show. Many large carriers have managed to negotiate a decent fuel surcharge to offset the increased fuel costs, but they don't necessarily pass that additional amount on to the owner-operators who haul their freight. This skimming of dollars paid to buy fuel by large carriers and freight brokers has resulted in the introduction of bills in both the House and the Senate to legally require fuel dollars be passed on to the person that pays for the fuel. The TRUCC Act, as it is known, is facing opposition from, of all groups, the American Trucking Association; the organization which represents these large carriers.

One would think that, given the numbers of trucks now parked and no longer operating, the price of diesel would go down due to over-abundance. This has not happened-diesel is still rising right along a full dollar above gasoline. And as capacity of trucks begins to reach more nearly the level needed to move all the freight, prices for finished goods will rise as a limited number of trucks will force manufacturers and retailers to compete for trailer space with a better price. However, those truckers no longer employed, along with other unemployed, will of necessity buy fewer goods- further depressing the economy. In effect, our economy is being downsized, our standard of living lowered and our access to necessary goods an services limited-much of it caused by the price of diesel fuel.

Globalization and the off-shoring of manufacturing, then, have benefitted only a few. Most of those benefitting are the self-same investors whose manipulation of the petroleum markets have created the fuel situation. One wonders why these supposedly sophisticated investors do not see they are pushing their own financial profits up and over the cliff but such investors seldom look beyond the next quarter and have little concern for long-term financial viability. The entire system becomes a game of musical chairs in which, when the music stops, the losers are forced out of the game. The majority of the population is negatively affected whether they realize it or not. The high cost of diesel may be the straw that breaks the global economy's back. This may not be a bad thing as it has proceeded through deceit and fraud perpetrated upon the world's working classes. However, the price of diesel has accelerated the collapse and created major problems for the lower income classes. Unlimited increases in the price of diesel fuel are pushing the decline down the steep hill toward widespread bankruptcy. When the looming collapse comes, as it must without major changes, these same greedy investors will be jumping out of the same windows as their predecessors were in 1929. If they don't, there will be plenty of people willing to push them.