The Other Fuel Price

The current debate about spiralling fuel prices uses the price of gasoline at the pump as the belwether of energy prices. In the real estate industry, the energy metric commonly raised is electricity. But another spike is more striking: Diesel fuel prices soared 26.75 cents, or 7 percent, to an average $4.0630 per gallon from $3.7955 two weeks earlier, according to a report by Reuters, Sunday, March 23, 2008. While gas prices hit us directly, diesel is the fuel of our macroeconomy, driving the global supply chain — from trucks to trains, ships, boats and barges, not to mention farm and construction equipment Worldwide demand has been increasing because of emerging economies like China and India, as well as Europe — all of which has tightened global refining capacity. Also, the Federal excise tax on diesel fuel is 24.4 cents per gallon — a full nickel higher than the tax on gasoline. Time will tell what impact this will have on the industrial real estate sector which remains strong — in part because manufacturing output in the U.S. has never been higher and continues to expand, helped by the weakening dollar which has buoyed a good deal of outbound trade. Also, retail remains solid, particularly the indy grocers and big-box retail which fuel so much of the warehouse/distribution construction in our country. Will the rising cost of fuel cause a shift in the supply chain? Perhaps the most compelling proofs of the impact of diesel prices may be anecdotal and personal. Take trucker Charles Monroe, a driver for more than 30 years. During an interview with WDEF in Chattanooga, TN, Monroe said, “Since I’ve been driving fuel prices have tripled at least. It’s about $600 to fill this one up if she’s empty.” With diesel prices at almost $4 per gallon, many drivers are cutting back. Independent trucker Jessie Smith says , “If they got three or four trucks they’re parking them and running just one and doing short hauls. The rate of the freight is not going up with the fuel prices. I’m doing mostly short hauls. They pay a little bit more per load and per mile and that helps with my fuel bill.”