High diesel costs forcing firms to increase prices

Gasoline gets the most attention when fuel prices rise, despite the fact that almost everything in the typical American household got there with the help of diesel.

Both types of fuel hit record-high prices this month.  But the wider impact might be felt with diesel, which powers everything from the farm equipment that helps produce the food in our refrigerators, to the tractor-trailers that transport most of the products sold in stores, to the trains and boats that move some goods, to the construction equipment used to build homes and other structures.

“Basically, what it boils down to is diesel is how the economy moves,” said Denton Cinquegrana, chief oil analyst at Oil Price Information Service based in Rockville, Maryland.

Many of the companies paying rising diesel costs to make and deliver products will be recouping at least some of their expenses by raising prices for customers.

Long Island’s diesel-dependent businesses are feeling the pinch of fuel prices hitting highs this month not seen in almost 14 years.

Diesel power touches almost everything at Sujecki Farms & Nurseries, which owns 175 acres of farmland at six locations, from Calverton to Jamesport, said Jon Sujecki, a fifth-generation farmer who co-owns the business with his wife, Kristy.

The price has doubled  for the diesel needed for the farms’ 12 tractors, and the cost he pays trucking companies to transport freight has risen 30% compared to last year, said Sujecki, whose farms grow  fruit, vegetables and California privet, a shrub used as hedges in yards.

The farms’ cost of fertilizer, which is a petroleum-based product, has nearly doubled in the last year, from $500 a ton to $950 a ton, he said.

Also, diesel is used to run the irrigation systems at Sujecki Farms, and that process will start in May and end in October, he said.

The farms’ costs have “exploded. … I feel like there’s no stop to this right now,” said Sujecki, 36.

Most of his customers are produce brokers, who sell to restaurants and grocery stores, and nursery brokers, who sell plants to garden centers, he said.

He raised the farms’ prices  7% over the last year, mainly because of the rising cost of diesel, and some of those costs are being passed to retail customers, he said.

Trucks do the heavy lifting

The average price for diesel hit record highs several days in March, with the nationwide price hitting a peak of $5.14 a gallon March 12 and the Long Island price rising to $5.36 a gallon March 13, according to AAA. 

Uncertainty amid Russia’s Feb. 24 invasion of Ukraine and low inventories of diesel globally have pushed this month’s prices to highs not seen since 2008, Cinquegrana said.

Meanwhile, trucks still account for most of the nation’s transportation of freight, 73%, but in New York state, the rate is 94%, said Kendra Hems, president of the Trucking Association of New York, a Clifton-based trade group.

For trucking companies, fuel costs are typically the second-highest cost, after labor, Hems said, but these days, fuel is the highest cost for some. 

She said the companies being hit the hardest right now are small ones with 20 trucks or fewer; those small operations account for 90% of the trucking companies in the country.

“Smaller carriers don’t always have the luxury to walk away from the contracts” for less-profitable deals with potential customers   as supply chain challenges and consumer demand persist, she said. “And if these companies can’t weather the storm, we’re going to have further disruptions to that going forward.”

Shea Trucking in West Babylon is hired by companies to move various types of freight, including steel, granite, furniture and cosmetics, between New Jersey and New York ports and warehouses and other destinations, said Jim Shea, president. The business also transports goods from airports, said Shea, who said the company has 14 straight trucks, 12 tractors and 28 trailers.

“As far as the fuel goes, it goes up and I have no choice but to push the cost on to my customers,” Shea said. 

About three weeks ago, Shea Trucking raised its fuel surcharge, the fee customers pay based on the weight of the goods being transported, from 25% to 35%, the highest it’s been since the business was founded 50 years ago, he said.

Trucking remains the most efficient method of moving freight because of the time element, said Avery Vise, vice president of trucking at FTR Transportation Intelligence, a Bloomington, Indiana-based market analysis firm.

“It’s probably not as efficient as rail  in terms of cost but there is a balance there with shippers,” especially during the COVID-19 pandemic, when consumer demand is strong and inventories are stressed, he said.

‘You can’t cut back’

Bill Gellert co-owns 54 restaurant franchises in 10 states, including all nine of the Five Guys restaurants in Suffolk County, under Gellfam Management Corp. in upstate Hillsdale.

The fuel surcharges food distributors charge to deliver products via tractor-trailers to the restaurants have doubled in the past few months, said Gellert, who said inflation tied to rising product costs and employee wages were already putting pressure on the business. 

“You can’t cut back staff because if you cut back staff, you cut back service.  And if you cut back service, who is going to want to go to our place?” he asked.

The rising fuel prices have increased the Long Island restaurants’ overall costs by nearly a full percentage point, Gellert said.

“On Long Island, that would represent over $10,000 a month” of an increase compared to last year, he said. 

So, the business has invested more money to implement technology to run more efficiently, including scheduling employees more appropriately, based on customer demand, he said. 

One of Sujecki Farms’ produce customers is grocer Stew Leonard’s, a Norwalk, Connecticut-based chain of seven supermarkets, including two on Long Island.

Stew Leonard’s fuel costs for its stationary refrigerated trailers and about a dozen tractor-trailers that ship products between its stores and distribution centers rose by more than 28% in 2021 compared to 2020, spokeswoman Meghan Bell said.

“If fuel prices continue to rise at their current pace, we expect to see in 2022 more than a 56% increase in fuel costs over 2021,” she said.

The grocer has tried to offset its increased costs of fuel, food and employee wages somewhat by increasing its grocery prices in stores by about 3.5% since the start of the year, said Stew Leonard Jr., president of the grocery chain.

“So, our family has been dragging our feet a little bit on that.  So, we don’t want to start raising everything … we’re caught between a rock and a hard place right now,” he said.