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High diesel prices amid subdued interest rates in September prompted Pomona, Calif.-based trucker Khalid Masri and his small business, KM Global Trans, to shut down two of his four trucks.
West Coast freeway diesel prices have skyrocketed in recent months, particularly in California. The average price in the Golden State topped $6 a gallon last month and continued to rise until the most recent weekly reporting period, falling to an average price of $6.18.
Masri has been a driver for 27 years in the industry and in the automotive industry as an owner-operator since 2000, and has owned four trucks since 2016, hauling freight through the Lower 48, he said. But it is the first time he has had to stop half his operations.
“Even outside of California, fuel is still high,” he said.
California diesel prices see increases in 2022, 2023
Average cost of diesel fuel, including taxes, in the western US and nationally.
Higher taxes for interstate truckers add operating pressure
Truckers pay fuel taxes in several ways. Prices at the pump reflect a set of fees, but interstate drivers also pay a quarterly tax that helps states and Canadian provinces maintain their infrastructure.
The quarterly fee includes the International Fuel Tax Agreement, a system for US states and Canadian provinces to receive money for transportation infrastructure based on where carriers burn fuel, not where they buy it. Typically, the tax rate for this fee increases about once a year — but California operators have been subject to multiple increases in the past year.
On Oct. 1, California’s combined tax rate dropped from 89.3 cents per gallon to almost $1.09adding to previous increases the state did on July 1 this year and last year.
Bills under the tax system are due quarterly, requiring interstate trucking companies to reconcile amounts owed to states and provinces, and the cost is now something many members of the Western States Trucking Association cannot afford to pay. said Joe Rajkovacz. , director of government affairs and communications.
While other taxes are paid once a year, quarterly bills add up. Masri said he spends a few thousand dollars every three months on the IFTA tax.
California’s rate is the highest in the US, and these taxes are in addition to other levies, such as the federal diesel excise tax of 24.3 cents per gallon. Among other places in the US with the highest rates for the IFTA tax, Pennsylvania lists his percentage as 78.5 cents per gallon and the Illinois rate as 78.8 cents per gallon.
California uses the revenue to build and maintain public roads and mass transit systems. The California Department of Taxation and Fee Administration currently oversees the changes, and the increases are based on a percentage change in the consumer price index, according to the department.
Refinery output reaches low levels as strategic transitions
Even without the interstate tax, California diesel prices are extremely high compared to other states, said Avery Vise, FTR’s vice president of trucking.
The West Coast average excluding California was over $5 a gallon, but the next highest were the Mid-Atlantic and Rocky Mountain regions, both around $4.72.
“That’s a huge gap,” Vise said.
An imbalance in fuel supply and demand explains regional price differences, according to the California Energy Commission.
“Like gasoline, diesel fuel in California often follows different patterns than nationally,” the agency said in an email to Trucking Dive. “This is partly because California is a transportation fuel island with no pipeline infrastructure available to transport fuel from out of state to the state.”
California average diesel prices are higher than other regions
The average highway price per gallon for diesel fuel, based on eight geographic areas as of Oct. 9, according to the federal government.
Supply issues in the Golden State have lingered over the past year, and California regulators have moved to wean consumers and businesses off fossil fuels, seeking to achieve carbon neutrality by 2045.
As part of its effort, the state is pushing to repurpose oil facilities into alternative energy sources. In early 2023, Phillips 66 ceased operations at the Santa Maria refinery and is working to convert its San Francisco refinery’s Rodeo facility to renewable fuels.
“As we bring this facility online, we are taking off almost as much traditional diesel as we are bringing renewable oil to market,” CEO Mark Lashier told investors in a earnings call Aug. 2.
The updated facility, known as Rodeo Renewed, has those operations scheduled to begin in early 2024, swapping the processing of crude oil for that of waste oils, fats, greases and vegetable oils with renewable diesel, renewable gasoline and more sustainable aviation fuels. .
Similarly, Marathon Petroleum is also converting the Martinez refinery in the San Francisco Bay Area. CEO Mike Hennigan said on August 1st earnings call that the facility is expected to reach full capacity, 730 million gallons of renewable fuel per year, by the end of 2023.
Amid those changes, California’s quality diesel production has hit a 15-year low this year, producing less than 1 million barrels per week in July and other parts of the year, according to to declare details.
For some truck operators, fuel costs have been sticking points in an already tough market.
Masri expects to wait until at least early next year to see if market conditions warrant bringing drivers back. He has used the savings to pay for insurance and watched other trucking businesses cut back. Other owners have resigned.
“This year is worse than any other year,” he said. “Fuel pricing and tax took a huge chunk out of our profits.”