In late summer, when almond husks split open, workers at Creekside Farming in Madera gear up machinery to shake the trees. Tractors zoom around, fallen nuts are collected, and trucks cart off the bins of almonds.<\/p>\n
The whole process relies on diesel fuel, which has grown extremely expensive in recent months, said farm owner Jay Mahil, whose family has been growing wine grapes, citrus and other crops in the Central Valley for four generations. <\/p>\n
The national average price of diesel hit a new record high of $5.85 per gallon Friday, while California\u2019s average climbed to about $7.71, according to AAA motor club.<\/p>\n
The oil product undergirds much of the global economy, and California, a major player, is no exception to the pain caused by ongoing supply chain disruptions stemming from the U.S. war with Iran. <\/p>\n
The higher fuel costs are squeezing businesses across various industries in California, which has massive trucking and agricultural sectors that rely heavily on diesel to power equipment.<\/p>\n
Mahil said his fuel costs are up 40% from this time last year.<\/p>\n
\u201cThese higher costs come at the worst time for us, \u201c Mahil said. \u201cThese are highly inundated time frames.\u201d<\/p>\n
Mahil keeps a close eye on prices. When there\u2019s an occasional slump or dip in the oil market, he orders several truckloads of fuel. But other businesses usually have the same idea, and the fuel depots often run out those days.<\/p>\n
\u201cWe are running a little leaner right now, with less oil in the tanks,\u201d Mahil said.<\/p>\n
California diesel prices set a new record earlier on in the war, at around $7.75 in April.<\/p>\n
Greg Dubuque, general manager for a trucking fleet based out of Montebello, noted that the cost to fill his trucks in California has gone from around $1,200 in April to $1,800. <\/p>\n
\u201cIt\u2019s a dramatic impact, especially for us smaller companies,\u201d he said. <\/p>\n
Gene Seroka, executive director of the Port of Los Angeles, said more than two-thirds of cargo moving in and out of the port is carried by trucks. And of the some 1,200 trucking companies that do business at the port, more than 50% are small to medium-sized companies that are seriously struggling with prices, Seroka said. <\/p>\n
\u201cIt\u2019s difficult for companies to absorb such an energy shock as we\u2019ve seen over the past six months,\u201d Seroka said.<\/p>\n
The turmoil in the Persian Gulf region is forcing cargo away from the Suez Canal and onto a longer route around the southern tip of Africa, creating longer transit times that burn more fuel and drive costs up further, Seroka said.<\/p>\n
Increased diesel prices are pushing up the cost to transport food. Frozen and refrigerated goods, such as fresh produce, are most sensitive to price increases because diesel is typically used to power both cold storage and transportation. <\/p>\n
Nick Vyas, supply chain expert and professor at USC Marshall School of Business, said that while companies try to absorb some of the cost increase, grocery prices are starting to tick up in stores<\/a>. <\/p>\n Though grocery costs may decrease slightly once fuel costs stabilize, they are unlikely to return to pre-conflict baselines as retailers adjust to higher prices, Vyas noted, pointing to sustained increases in food costs post-pandemic. <\/p>\n With American refiners funneling the fuel oil into international markets, the domestic supply has dwindled, driving up prices. Diesel prices jumped 7 cents overnight, 24 cents in the past week, 48 cents in the past month and $2.14 compared with this time last year, according to AAA.<\/p>\n Kandace Redd, a AAA spokesperson, said the organization\u2019s past research shows that consumers are most likely to drive less, combine errands, and reduce shopping or dining out to cope with record pump prices.<\/p>\n Diesel prices in California are typically above the national average as the state faces cost pressures from higher taxes and environmental standards, Vyas said. Because around 40% of goods imported in the U.S. pass through the San Pedro and Long Beach ports, California\u2019s energy costs also expose the rest of the nation\u2019s supply chain to these increases.<\/p>\n Larger companies are better poised to absorb some of the shock of increased prices through higher profit margins and the ability to buy in bulk, Vyas said. Mom-and-pop businesses, such as small trucking fleets or family farms, are hit harder.<\/p>\n \u201cWhen you\u2019re a large national truckload carrier, the J.B. Hunts and the Swifts and the Werners of the world, they do a lot of hedging on fuel,\u201d meaning they establish advance agreements to purchase fuel at a fixed cost, Dubuque said. <\/p>\n His smaller fleet of 40 trucks, on the other hand, is generally stuck paying the price at the pump.<\/p>\n Dubuque is taking several steps to try and mitigate the impact. This includes explaining the rising cost of doing business to his customers, avoiding refueling in California where possible and using alternative fuels to power air conditioning in trucks overnight. <\/p>\n But as the manager of a smaller company, he is nervous about how long these strategies will work if diesel prices don\u2019t start dipping.<\/p>\n A similar disparity is seen when it comes to the impact of rising diesel prices on consumers, Vyas noted. For low-income households, any uptick in grocery prices will stretch already strained budgets, while wealthier consumers may not notice the change.<\/p>\n