How record diesel prices will rip through the U.S. economy

Ever since the outbreak of war with Iran earlier this year, motorists have been warily eyeing prices at the pump. While unleaded gas prices have largely avoided historic highs, the same can’t be said for diesel fuel, which hit an all-time high of $6.31 per gallon on Wednesday.  

That was just the latest grim milestone in what has been a steady march upward. Economists and supply chain experts say what starts in the transportation sector, where trucking and rail companies are feeling the pain now — will eventually push prices on virtually everything in the economy up.

This is not surprising, because diesel is the economy’s single most universal tangible input, said David Russell, global head of market strategy at TradeStation Group.

The first to feel it are freight haulers, but there will be plenty of other losers — consumers and companies — if diesel remains at record price levels. 

The chief commercial officer for Norfolk Southern railroad noted at a Morgan Stanley conference on Tuesday that in California, the price of diesel was already $8.

Consumers are getting a taste of what could come next in the form of already higher prices at the gas pump. What is driving up gas prices right now isn’t just the price of oil, said Jeff Lenard, vice president of media and strategic communications at the National Association of Convenience Stores. It’s the price of diesel. The cost to get the gas to the gas station is the driving factor behind the steady increase at the pump. 

“The higher transit costs are adding several additional cents to the cost of selling fuel – as do swipe fees that are percentage based and increase as prices increase,” Lenard said. Retailers are faced with the tough decision of whether to absorb these added increases or pass them along at the pump. 

“Right now, they are absorbing the bulk of the costs, which typically happens when wholesale prices and costs increase dramatically. Right now, retail gross margins have constricted by about 15 cents a gallon, which is typically what their net margin is,” Lenard said. 

And then the chips, soda, and doughnuts inside your favorite convenience store also have to get there — by diesel-powered trucks — so the pain from the pump seeps into the store because getting the items there is costing a lot more. 

Costco recently made the decision to limit how much gas its members can buy.

Carmit Glik, CEO of Ship4wd, an all-in-one digital freight forwarder and subsidiary of Israeli shipping giant ZIM, said that diesel is the price nobody watches until it’s already inside everything else. “It moves through freight rates, farm equipment, food delivery, and home heating, anything that touches a truck at some point in its journey,” Glik said. 

It can take awhile for the diesel cost to work its way through the economy and into your bank account. 

“Consumers feel it last but not…