From Mattresses to Meow Mix, The High Cost Of Diesel Showing Up Everywhere

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Record-fast price increases for diesel fuel are shaking up the nation’s manufacturing and supply chains, contributing to price hikes in everything from Meow Mix to mattresses and forcing corporate executives to rethink business models that may be too dependent on just-in-time inventory management policies honed during the era of cheap oil. Crude oil prices have soared 16% so far this year, and that’s being reflected in at-the-pump prices for diesel of just over $4 a gallon nationwide, up 42% from the $2.83 seen in April of last year. “The run-up is just staggering,” said Steve O’Kane, a 20-year transportation industry veteran and president of A. Duie Pyle, a West Chester, Pa., trucking and logistics firm. “It absolutely is a crisis and not the same old business as usual. And barring a worldwide economic disruption, I don’t see pricing going down.”

Consider the impact on United Parcel Service, the nation’s largest trucking and delivery firm. The company knocked roughly 10 cents a share off its first-quarter earnings outlook last Wednesday, citing weakening demand and higher fuel costs.

Many shippers are quickly passing higher diesel costs on to customers through higher rates or fuel surcharges, even burying them in invoices when shipping freight on board. (UPS raised its ground rates by 4.9% at the start of this year, on top of a 4.9% increase last year; FedEx followed suit, hiking its rates 5.5%.) As a result, businesses have been opting for cheaper modes of transport—shifting, for example, from next-day air delivery to ground shipping or deferring deliveries a day or two and consolidating shipments to cut the number of trips.

Gary Busch, director of purchasing at Shiloh Industries, a Valley City, Ohio, supplier of stamped metal parts to the auto industry, said it is a chaotic time for any manufacturer trying to manage fuel costs and other hikes in commodities prices. “Steel for us has almost doubled in price in the last month and a half, so we’re getting hit from all sides,” he said. “We lock in wherever we can . But a contract’s only good in a fairly stable market. In this kind of market, people break contracts pretty quickly to remain viable.” Mr. Busch said he’s heard of some companies with an open-ended fuel surcharge clause in their shipping contracts that has resulted in their rates rising by 15% to 30% this year.

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