The Expert Podcast

So what does diesel fuel have to do with the economy? Well, you might think that there's connections with inflation, and if there are rise in diesel fuel costs, it's going to cost more to get products to the shelves, and there might be inflation of retail goods. But it's worse than that. There's more to it than that. It's not just that the price of things on the shelf at Walmart or at your grocery store is higher because the diesel fuel is higher that was required to get it shipped to the store, although that is part of it.

You gotta remember diesel fuel is just one small piece of the cost of that item. You have to manufacture the item, you have to package it, put it in a box, and even the cost of trucking it there isn't all diesel fuel. You have the truck itself and the driver and all the other fees that go along with it, so it's a small part. But the bigger issue with diesel fuel is that because diesel fuel has become so expensive, in some places hard to get—we did a video a couple weeks ago about how diesel fuel and DEF (diesel exhaust fluid), which is a required fluid made out of urea that goes into tanks in an over-the-road truck to reduce emissions—those two products, diesel fuel and DEF fluid, are both in short supply.

Some of the railroads are shutting down shipments of those products. And yeah, it's going to affect retail products because of the cost of those items. But it's worse than that because it's going to start creating a bottleneck in shipping. Because if they're not available, or if it's too much to make it worth it, trucks aren't going to be able to ship it at all. Not just that they have to charge more for the freight—they won't be able to drive at all.

Here's an example from Yahoo News. Business Insider published this, where skyrocketing diesel prices are making the supply chain unsustainable. But it's worse than that. Take a look: trucking company owners warned prices could cause supply chain issues. They've had to take loads at a loss and are considering leaving the industry. They're not considering it—there’s lots of them that already are leaving the industry because it's not worth it to drive a truck.

The owner of Iron River Express—costs them over twenty thousand a week to keep three trucks running. So think about it: twenty thousand a week—that's seven thousand dollars per truck. If there's three trucks at $7,000 per truck per week, that's a thousand dollars a day to run a truck. So if you have even one shipment a day, one truckload, you have to add a thousand dollars to the cost of that truckload to get it to where it's going. And that's if you do one truckload a day—you may not be able to do one truckload a day. You might have to take three days to get there and get back.

What is his prediction? "I promise you, you'll see some empty shelves. You'll see chaos as people fight for basic necessities of everyday life." Is that exaggeration? Who knows. But let's look more into it.

One trucker told Insider that he's going to close up shop because the industry is overrun with new carriers that don't know how to quote a rate. They're so focused on competing for a load that their quotes are unrealistic. They won't be able to sustain that. Many truckers are considering leaving the industry, sometimes trying to stay afloat asking themselves, "Is it worth it?"

Well, that's going to be a problem. Here's why: if the current freight expense that's built into products is not the true expense—meaning that there are some truckers that are just trying to scrape by and bidding on loser prices in order just to keep their truck on the road—at some point they won't be able to be on the road.

It's very likely, according to people we've spoken to, that the actual cost for shipments of goods is 30 to 40 percent higher than currently what's being built into the price. So every time you see a Walmart truck going down the road, or a Swift truck or JB Hunt, and they're transporting products to the store, transporting products to the warehouse, they've built in a price for that shipment. Let's say it's a thousand dollars for a load—it may be that the actual cost to that trucker is thirteen hundred dollars, fourteen hundred dollars. But the wholesale receiver of that shipment is only paying a thousand.

Well, that can't go on forever. The only reason it's happening temporarily now is truckers are trying to stay in business. They have a lease payment on their truck. Some are owner-operators, have a lot of expenses. They can only do this for so long until the expenses catch up with them and they go out of business.

And one of two things will happen: either the shippers or the consignors will have to raise up their rates and start paying $1,300–$1,400 for that truckload—or the load won't get shipped. In either case, that's going to affect the end user consumer. Either there's going to be fewer items on the shelves—we're already seeing that—or the cost of goods is going to go up because of the shipment.

The freight cost, the delivery cost of most goods at a store is about 20 to 25 percent of that item. So if something costs, let's say, a hundred dollars, maybe twenty dollars of that hundred is shipping it—the various levels to that store. Maybe twenty-five dollars. So if that twenty-five dollars goes up thirty percent, that's going to add eight or nine dollars to the cost of that item. That could put another ten percent inflation factor on every consumer good that is in every store—not counting the other inflationary factors that are going into the market right now.

This is a hidden future inflation that's just waiting to happen. It's like a volcano waiting to explode. Not many people see this. Some of the stores that are retailers know this is going to happen, and they're already starting to cut back on deliveries, on inventory, on advertising, on employees.

Look how many articles you've seen lately about retailers starting to cut employees. Why do you think they're doing that? Because they know they will not have the inventory to be able to deliver. They know that even if they do, the cost is going to be higher, which means fewer people will buy. You'll have that demand destruction factor we talked about earlier.

So anything you think of buying right now—if you think it's high now—just wait until these trucking companies start to reduce, cut back their fleets, go out of business, or just bid the higher price at a cost to stay in business. And it'll probably go up more than 30 or 40 percent, because the companies that do stay in business are going to have to charge even more than the actual cost to make up for their losses. If they've gone into debt $50,000, $80,000, $90,000, they're going to have to pad their bills on the new shipments to try to pay some of that back. They can't just break even anymore. And a lot of them are saying it's not worth it to drive a truck unless they're making money.

So look into this for yourself. Don't take our word for it. Look into the data—you've seen some of it. Look into the shipping rates, the LTL rates, or the intermodal rates. Let us know what you think in the comments. Tell us if you're seeing this in your business. Are you a trucker? Are you a retailer? Are you a wholesaler? Do you have a warehouse? Are you seeing some of these factors already? Are you seeing less availability to get bids on shipments?

Are you seeing ten bids and one of them is too low—you know, they're all around $1,100–$1,200 and one of them is $800? Well, that $800 guy—he's just scrambling. Those are going to go away pretty soon. Take advantage of it while you can, but be aware that your business model may have to factor in higher prices for freight down the road.