The International Energy Agency (IEA) warned Tuesday that constrained diesel supplies could persist well into 2027, as counter-seasonal stock draws and restricted production collide with peak winter demand. The agency’s monthly oil market report landed the same day that U.S. Energy Information Administration (EIA) data showed the national average on-highway diesel price falling for a second straight week to $6.179 a gallon.
The two-cent decline from $6.382 in the week of Sept. 28 offers shippers only modest relief. U.S. on-highway diesel remains more than $2.50 a gallon above year-ago levels, and September refining margins hit a record of almost $95 a barrel after attacks linked to the Iran war slashed refining capacity, according to the IEA.
For Jim Horrigan, an expert partner at Bain & Company who has spent more than 30 years in procurement and sourcing consulting, the message for shippers is to stop waiting for prices to normalize.
“You can’t do much about diesel prices, but you can work on focusing on the controllable expenses within freight,” Horrigan told Sourcing Journal.
In a report published Oct. 1 with Spencer Shute, a vice president at Bain-owned Proxima, Horrigan laid out four moves that leading freight-intensive companies are making now.
The first is taking control of fuel surcharges, where diesel inflation hits hardest. Bain recommends shippers establish their own surcharge schedules in carrier contracts, pegged to the EIA’s weekly diesel prices, and negotiate limits on how often carriers’ schedules change and how large adjustments can be for those who stay on them.
Horrigan said the advice reflects what he is already seeing from clients. He described a consumer products company that “went back on their small package and put a cap in place,” agreeing to review freight and fuel price increases only once a year at contract time. The point, he said, is making sure costs that rise can also fall when diesel resets.
According to the Q4 TD Cowen/AFS Freight Index released Tuesday, parcel fuel surcharges have largely stopped moving in line with the pump, with the carriers using them more as a pricing lever than a cost pass-through.
Diesel rose from an average of $2.91 a gallon in the first quarter of 2021 to $6.53 this September, while the average parcel fuel surcharge climbed from 7.75 percent to 30 percent. AFS calculates that 72 percent of the 22.25-point increase came from carriers rewriting their surcharge schedules rather than higher diesel prices. Even if diesel fell back to $2.91, the surcharge would stand at 23.75 percent, roughly triple the 2021 level.
Bain’s report offers its own illustration of the one-way pattern. UPS raised its fuel surcharge from 21 percent before the conflict with Iran to 29.5 percent as of Sept. 21, then adjusted the mechanism so rates decline more gradually as diesel prices fall.
Carriers that have not yet renegotiated their surcharge schedules will likely follow, the report says. J.B. Hunt offered a live example last month, warning that third-quarter earnings would fall 5 to 10 percent sequentially as chief financial officer Brad Delco cited “some of the most radical and abnormal swings in fuel prices” and a “mismatch, based upon the delay part of pricing, that we see in intermodal relative to the costs we’re feeling now.”
Fuel now accounts for an estimated 25 to 30 percent of trucking operating costs, up from about 21 percent in 2024, according to Bain. For a shipper spending $50 million a year on truckload base rates, the surcharge swing alone adds $2 million to $4.5 million to the annual bill.
The second move is shifting eligible freight to rail, which costs significantly less per mile than truckload, though Horrigan cautioned that a late train can spoil the economics. He pointed to a tier-one automotive client weighing a rail shift on lanes where it can build inventory buffers to absorb the uncertainty.
J.B. Hunt’s intermodal business has benefited from this shift thus far. The trucking company posted its first double-digit volume-growth quarter in more than a decade in the second quarter, with management linking the growth to mode conversion as truck pricing became less attractive.
Additionally, Bain recommends that better execution can cut wasted miles and fuel consumption.
“No one’s going to come out with a new fuel-efficient truck and change out a fleet in the short term,” Horrigan said. “These are the things you can do. Reduce empty miles, reduce idle time, improve your network design so you’re shortening the lanes that you’re shipping on.”
Additionally, he cited delivery windows and drop-trailer programs, long used by home improvement retailers, as ways to cut idle time at loading docks.
“Does it have to be next day, or can it be two day?” Horrigan asked, urging shippers to question service levels.
Finally, Horrigan noted that inbound freight deserves the same rigorous management as outbound, stressing that procurement teams need visibility into the freight component of supplier pricing.
“Suppliers come to procurement and say, ‘Hey, we need a price increase because of freight,’” said Horrigan. “They use it as an excuse to grab at that opportunity to raise prices due to freight cost increases.”
Once the freight cost is visible, he said, a company can decide whether to keep letting the supplier handle it or take control itself. That visibility also opens up savings, since inbound shipments can be matched with outbound ones into round trips rather than empty backhauls.
“Carriers love that because they don’t want to run out empty,” Horrigan said. “It just burns fuel without generating revenue.”