Freight Brokers Dealing with High Fuel Costs – Part III

As mentioned in Part II, US demand for gasoline has dropped every year since 2007. There are no secret reasons for this. First, the recent recession slowed demand because drivers cut back; also, cars became more fuel efficient; and the government has imposed more mandates for the use of corn-based ethanol fuel.

In the face of this, people in rapidly growing economies in Latin America and Asia are driving more cars and building more roads and factories. Europe is demanding more fuel because it lacks refinery capability.

Such demand from growing economies will “prop-up” fuel prices into the future. In 2011, crude oil prices averaged $95 per barrel and gasoline averaged $3.52 a gallon.

A decade ago, crude oil averaged $26 per barrel while gasoline averaged $1.44 a gallon.

Thus, over the past decade, the cost of a barrel of crude versus the cost of a gallon of gasoline has increased greatly. That is, the amount you pay at the pump is not going up as fast as the cost of crude oil.

If the cost of gas at the pump versus the cost of crude were at the level of a decade ago, the average cost of a gallon today would be about $5.28.

I’m no economist but I do follow politics. I believe progressive liberals would NOT discourage higher fuel prices at the pump and much of this price increase would be in the form of taxes.

This would wreak havoc on nearly everyone in the transportation sector not to mention the entire economy. Where would these additional revenues end up? I'll give you a hint in Part IV.

And the larger question is: Can you imagine any other event that would really destroy the middle class?

In Part IV, I will continue with this thought …..

Comments

[Esteban Burgoa]

Taking a bite from the hard working people and putting it in another pocket, leaves our local workers without cash to spent on local businesses. The transfer of wealth to overseas is destroying our economy and comfort life we Americans enjoy. We need more pride in our public servants to serve our needs and not their personal needs of them or their friend. it is a shame that a poor kid with brains can not be president but if you have millions and no brains you can be president. We Americans must be more selective in who we choose for office to help our nation.

[John]

What is "fair" to one person is not fair to another. I'm not for higher fuel costs. But "fairness" does not play a factor. The fact is, market dynamics such as supply and demand will dictate many of the fluctuations in fuel prices.

They must be fair in fuel costing. It's not good that fuel cost will increase all the time even thought the demand of the gasoline get down. It's not helpful and applicable especially in a freight broker industry.

[Sharon Porter]

Hi John,

I must say, I have wondered how this will affect the freight broker or agents. I see loads all time not being moved because shippers do not want to pay alot for shipping their product. Thanks for sharing.