The world was hit hard by rising fuel prices, especially during the spring and summer of this year. And while prices fell dramatically from June to October, the drop was experienced most by people who own personal vehicles. The trucking industry, and every business that relies on diesel, by contrast, is still feeling the squeeze, with many places still selling fuel at $5 per gallon or higher. Of all carriers, small trucking companies are being hit the hardest, but there may be relief on the horizon.
Why Are Diesel Prices So High?
Most news stories point to a decrease in oil production for the hike in prices, but the real story is more complex, and goes back to 2019 and 2020. Natural disasters, such as hurricanes and one freak snowstorm devastated oil production facilities in the Gulf of Mexico and in Texas, for which they are still recovering. Almost immediately following those incidents, the COVID-19 pandemic hit. The pandemic did not directly cause worker furloughs or mass cases of illness. With cities under lockdown and many American workers shifting to remote or work-from-home environments, fewer people were traveling. Highways were not clogged with commuter traffic. People were not flying for business. No one was going on vacation. In fact, the trucking industry was the only business that kept moving on the roads.
Because hardly anyone was traveling, petroleum companies in the US and abroad cut production. The price of unleaded fuel plummeted per barrel, but the one sector in the industry that could make up the profits was to keep prices high on diesel sales. Fast-forward a year or two, and the United States was bouncing back from the pandemic. However, supply chain issues, combined with high demand, led to rising prices. The invasion of Ukraine did not help, as Russia cut off petroleum supplies for many nations, placing upward pressure on prices. Because demand was high in the transportation and freight industries, investors pushed to raise the price of fuel, because everyone had to buy it regardless of the price. The net result was to further slow down the economy. People simply were purchasing less fuel by volume, and because of the price of fuel, the price of consumer goods similarly went up to compensate for the cost of production and transportation.
Realizing the sluggish performance, investors pushed to lower fuel prices as an indirect way to stimulate transportation and drop prices on goods. Unfortunately, the equation was only partially balanced. Fuel prices dropped considerably for private individuals, but still stayed relatively high for the trucking industry. Additionally, prices of goods also stayed high.
The Impact on Small Trucking Companies
Throughout 2022, the cost of diesel has remained high while margins on hauls have been shrinking. This places small trucking companies in a tenuous position. Fuel costs take up a significantly higher percentage of the budget for small trucking companies than for larger carriers. Yet small trucking companies serve an important purpose by transporting goods to areas large carriers cannot reach. With tight margins and high diesel prices, small trucking companies are struggling to stay above water. Between fuel prices and cash flow issues, many small trucking companies are looking for alternative solutions.
Small trucking companies need to cover overhead – including fluctuating fuel costs – while also getting the best prices on diesel to keep their drivers moving. Larger carriers have a constant influx of revenue. Smaller trucking companies are typically waiting 30, 60, or 90 days for customers to make payments on invoices. The big secret is something large carriers use that smaller trucking companies may not know about: freight bill factoring. When trucking companies use freight bill factoring from Single Point Capital, they can access revenue from unpaid receivables within a single day. This accelerates cash flow, so small trucking companies have cash on hand for fuel purchases, as well as the capital reserves to ensure success.
Additionally, Single Point Capital offers the most comprehensive fuel discount program to ensure small trucking companies get the biggest discounts possible at over 5,000 truck stops and fuel providers nationwide. We also offer a suite of tools so you can manage expenses for your drivers, as well as plan for growth.
To boost your cash flow and get the best prices on fuel, contact Single Point Capital today.