When it comes to total freight costs, or costs for carriers and even many average drivers, diesel prices make up a major part of the equation. Last year saw these prices skyrocket before slowly coming back down to Earth, but what does 2023 hold? Initial projections for the year from the U.S. Energy Information Administration (EIA) have a continued decline in diesel prices throughout 2023, with the average expected to come in at $4.23 per gallon. That's compared to an average in 2022 of $5 and a peak - which also happened to be the all-time U.S. high - of $5.82 a gallon in June of last year. As another comparison, the most recent weekly average came in at $4.55 per gallon, which suggests diesel prices will drop a fair amount over the course of 2023. There is some disagreement in projections for the year, as GasBuddy predicts diesel will trend even lower, averaging $4.12 per gallon for the year and hitting a monthly low of $3.81 in September. On the other side, some experts suggest budgeting for a higher average when planning out costs, in the $4.50 neighborhood to be prepared for the possibility that the continuing Russian incursion into Ukraine (or an escalation of it), continuing COVID concerns, or other economic factors and unforeseen events like natural disasters could keep diesel prices higher in 2023.
Why will diesel prices go down in 2023?
Diesel prices are expected to go down in 2023 for multiple reasons, starting with the fact that they have already been dropping steadily since hitting record numbers in early summer. More specifically though, the EIA suggests growth in global demand will be limited and conversely, production will increase - leading to a rise in gasoline inventory in the U.S. Diving deeper into the numbers, gasoline consumption is expected to fall by 0.3 million barrels per day in 2023 versus last year. Refinery capacity that came online late in 2022 and additional capacity expansions planned for this year will improve the supply. And an important note: even as prices decrease, the expectation is U.S. refiners will keep producing gasoline and diesel to keep up with increased global demand - which will directly benefit U.S. gas and diesel prices in 2023 and theoretically keep them down. GasBuddy notes that a general economic slowdown will hold prices lower due to "gentler" demand, though they note that global demand could rise as COVID lockdowns in China are lifted, potentially impacting gas and diesel prices everywhere in 2023.
How will diesel prices impact freight costs in 2023?
Diesel prices have a direct correlation to freight costs, and 2023 will be no exception. In fact, diesel along with linehaul are the main components of freight pricing. When it comes to linehaul, spot rates have been trending down and contract rates have followed to a degree. While both will rebound, they are expected to stay below the especially elevated levels of the past couple of years. Combine that with the expectation of reduced diesel prices in 2023, and overall freight costs should be down this year. The Cass Freight Index expects a roughly 5% decline in freight rates in 2023 and notes that depending on how low diesel prices go, freight costs could go down even more. Also related to diesel prices is the fuel surcharge, which is added to shipments to adjust linehaul rates relating to fluctuating costs. As diesel prices trend lower, fuel surcharges will go the same direction or even disappear altogether if they follow the projected pattern in 2023.
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