No Quick Reduction in High Fuel Costs Likely

Don't expect a "quick price collapse" in what you pay for diesel fuel and gasoline, Mark E. Menezes, president/CEO, U.S. Energy Association, said during Wednesday's (7/1) Wine & Spirits Wholesalers of America webinar on how high energy costs are impacting beverage distributors.

Menezes noted that crude oil prices peaked on April 7 at $113 a barrel. While the price has since fallen to about $70—a 38% reduction—diesel prices have dropped only 14.5%, and gasoline prices are down about 15%.“Prices go up quickly but tend to be a bit ‘sticky’ on their way down,” Menezes said.

When asked for the optimal time to maximize fuel storage, Menezes noted that supply is typically most plentiful in February–March and October–November. He explained that refineries often reduce production for maintenance in April and May, while summer driving and the hurricane season (June through October) typically drive up demand and prices.

Menezes attributed past supply shocks to production capacity being taken offline, citing geopolitical instability involving Iran as an example. He added that the development of additional domestic energy sources has helped keep U.S. prices lower than the global average.

The discussion shifted to the viability of electric trucks. While some view truck emissions as a significant contributor to climate change, Menezes highlighted the unique challenges for beverage distributors, who haul heavy loads. Because electric trucks require battery packs weighing 8,000 to 10,000 pounds, he noted, “You’re paying more to deliver less.”

He added that the lack of fast-charging infrastructure for trucks necessitates incentives to build out capacity before large-scale, long-haul adoption can occur.

Francis Creighton, president and CEO of the WSWA, noted the logistical challenges of the industry: “If you’re delivering from Little Rock to the farthest corners of Arkansas, it’s a very long way.” He emphasized that the industry's regulatory environment adds further complexity.

“Our product is different,” Creighton said. “We’re regulated state-by-state. In some states, our members must post their prices in advance and hold them for the entire month. In control states, they don’t have the ability to change the fee they receive for delivering the product from the state warehouse to the retailer, and in some cases, they are managing the state warehouse.”

“Our industry isn’t the healthiest it’s ever been,” Creighton continued. “If we pushed price increases onto the consumer, we would push them away. So, we’re getting squeezed.”

Most WSWA members have already taken steps to improve efficiency, such as electrifying warehouses and forklifts. “But we’re losing a lot of (electric) supply right now, which is a reliability issue,” Creighton said. “We have to keep our warehouses reasonably temperature-controlled. We’re lucky in that we load our trucks at night, when it’s dark and electricity rates are lowest.”

Dana Brody, vice president of operations and technology at M.S. Walker, said 60% of the company’s energy supply is electric, while 40% is diesel. “Fuel is volatile—it changes every day,” he said. “Electricity is more stable, so you can come up with programs to control the expense.”

When asked about the range of trucks powered by natural gas, Brody noted that fuel range is less of a concern with natural gas. Menezes agreed, noting that the U.S. has abundant natural gas and that its pricing is not tied to global oil prices.

On the topic of fleet ownership, Brody said that purchasing fuel at wholesale prices provides a distinct advantage. “When we hand fleet management off to a third party, all those advantages disappear,” he said. “The fuel surcharges are astronomical.”

Alex Bergson, executive vice president of Manhattan Beer & Beverage Distributors, added that his company hedges against volatility by buying on a long-term basis. “We don’t have to react quickly to things outside our control,” he said. Bergson noted that natural gas has served as a helpful hedge against surging electricity rates, and his company has found success in selling solar energy back to the grid.

Brody added that M.S. Walker’s investments in solar power and LED lighting have also led to significant cost reductions, with Menezes noting that LED lights generate less heat, further reducing the demand on warehouse cooling systems. Asked how WSWA could assist the U.S. Energy Association, Menezes suggested that reforming the permitting process would save time and remove hurdles for new projects. He also noted that the Federal Energy Regulatory Commission currently has a proposal out for comment regarding the management of large-scale energy demands.

The discussion concluded with Menezes identifying hydrogen as a potential driver for the future of transportation. “I’m reasonably optimistic it will become a fuel of choice,” he said.