(The Center Square) – Washington’s average diesel price hit a record $7.47 per gallon Wednesday, while the Tri-Cities reached an even higher $7.53 per gallon, as rising fuel costs put new pressure on transportation, construction and other businesses across Eastern Washington.
The statewide average is up nearly $2.40 per gallon from a year ago, when diesel averaged $5.07, according to AAA. The national average stood at about $6.53 per gallon this week.
For businesses that depend on diesel to move products or operate equipment, the increase is becoming difficult to ignore.
“It has gone up considerably for us,” said Rod Smith, vice president of R.H. Smith Distributing Co. Inc. in Grandview.
Smith’s company previously operated a transportation business with 18-wheelers but sold that operation about two years ago. The company now primarily supplies diesel to customers.
Smith said his customers are paying more as fuel prices rise.
“Yes, to everyone,” Smith said when asked whether his company has raised prices because of diesel costs. “It goes up for everyone.”
Those increases can extend well beyond the price posted at a fuel station.
Companies that deliver products by truck generally charge a base freight rate plus a fuel surcharge that fluctuates with diesel prices, Smith said. Those additional transportation costs can eventually become part of the price consumers pay for goods and services.
“Any company that delivers products by truck has a base freight charge and a fuel surcharge,” Smith said. “Those surcharges have gone up drastically.”
Higher fuel costs hit construction
Eric Goranson, host of the home-improvement radio and podcast program Around the House and a construction and home-improvement expert, said the increase is affecting contractors and homeowners alike.
“It is really affecting people remodeling homes and contractors and even people using lawnmowers,” Goranson said.
For contractors, fuel costs can become especially significant when transporting large quantities of building materials to a job site.
“When you think about a lumber package for a house going in, thousands of dollars in additional fees just on getting products to the job site, it’s adding up,” Goranson said.
He said virtually every construction site sees deliveries from heavy trucks, making diesel prices a cost that can show up throughout a project.
“There is always a semi dropping off at job sites,” Goranson said. “And when it’s seven, eight bucks per gallon in some places, that’s insane when people are used to it being four.”
The impact isn’t limited to large construction projects. Contractors using trucks and equipment, as well as homeowners using fuel-powered equipment for property maintenance, can also feel higher fuel costs.
Goranson said homeowners planning remodeling projects should understand that higher transportation costs can be incorporated into the price of materials and labor.
Costs move through the supply chain
Smith said diesel affects far more than trucking companies because transportation is built into the cost of many products.
“If you are not plugged into the local news or world affairs, you don’t have an understanding that diesel impacts most all goods transported,” Smith said.
Fuel surcharges can be applied as products move through different stages of the supply chain, Smith said.
That means a higher diesel price can affect businesses that don’t directly consume large amounts of fuel.
A retailer receiving inventory, a contractor waiting for building materials or a manufacturer shipping products can all face higher transportation costs.
Goranson said the effect can become particularly noticeable for large shipments.
“If you have a truck full of tile coming from a manufacturing plant on the East Coast, we’re talking thousands extra to get it shipped,” Goranson said.
Those costs can ultimately be reflected in the price paid by the customer.
Washington fuel costs
Both Smith and Goranson pointed to Washington’s fuel taxes as one factor affecting what businesses and consumers pay.
Washington’s state diesel fuel tax was 58.4 cents per gallon, in addition to the federal diesel tax of 24.4 cents per gallon, according to the Washington Department of Revenue.
Washington also imposes additional petroleum-related taxes and fees, including the petroleum products tax and hazardous substance tax.
Goranson said the state’s fuel costs can influence where people choose to buy fuel.
“I know people in Vancouver, Washington, who drive across the river to Oregon to save money,” Goranson said.
Countering price swings
Smith said his company’s work involving the Hanford site provides an example of how some contracts can insulate businesses from changes in fuel prices.
The company’s Hanford contract operates on a stable structure tied to the daily price of fuel, Smith said.
“It is a fixed margin,” Smith said. “Whether it goes up or down, it does not impact us.”
Smith said rising diesel prices therefore have not affected the profitability of that work, nor have they forced the company to change staffing, routes, equipment or the way it bids those contracts.
For other businesses without similar arrangements, however, fuel costs can represent a significant variable expense.
For consumers who cannot avoid higher fuel prices, Goranson recommends comparing prices before filling up.
“My best advice is to shop around for those fuel prices,” he said, recommending apps such as GasBuddy that allow consumers to compare prices at nearby stations.
Smith said the higher transportation costs are ultimately felt throughout the economy.
“Those extra freight charges impact all goods delivered,” he said.