Diesel Blues

In mid-June last year, a gallon of diesel fuel cost $2.23. A year later, the average national price is $2.89, meaning haulers and recyclers are paying an additional 66 cents per gallon. This 29 percent price increase is already having an impact on both garbage and recycling costs.

Other costs are up, too. Petroleum-based plastic products such as garbage carts and recycling bins are more expensive. Steel prices also are up dramatically. As a result, trucks and large containers used for commercial garbage and recycling accounts also will cost more.

The impact of these high prices hit home recently when I read about the three locally based hauling companies that contracted to collect residential trash, recyclables and yard waste in my home county. According to a newspaper story, they buy 4,000 gallons of diesel fuel a day. Their contract, which was signed three years ago, allows a $1.55 per gallon cost for diesel. That was probably a fair price three years ago. But now every time they fill up a truck, they are taking a hit.

Higher diesel prices are raising the prices trucking companies charge to take garbage to disposal sites or recyclables to end markets. One solid waste company recently told a group of industry analysts that the per ton cost it paid to ship trash from transfer stations to landfills had doubled.

Fuel prices are rising for a very simple reason. Consumption is increasing faster than supply. Ironically, perhaps, the same rapidly growing Chinese and Indian economies that have created strong prices for our recyclables also have caused the price of diesel to go up. Their factories need our recyclables as raw materials, and their trucks, buses and cars need fuel. When consumption goes up and supply remains flat, prices will rise. Not even Congress can outlaw the law of supply and demand.

Of course, other factors come into play. Hurricanes Katrina and Rita wrecked havoc on crude oil production in the Gulf Coast states. One-quarter of our domestic oil supplies come from those states. Yet at the end of May, off-shore production was still 30 percent below the previous year. As the new hurricane season starts, don't forget that diesel prices spiked to $3.16 per gallon last October.

Prices normally go up in the spring and the fall as refineries switch to different fuel blends. In the spring, they start producing summer blends, and, in the fall, they start producing home heating oil. While prices normally go down after the switchover, higher prices have been the overall trend over the last five years.

And to make things more interesting, the new EPA regulations for ultra low sulfur diesel fuel are now in effect. EPA predicted that the new diesel blend will be 13.5 cents per gallon more expensive over the next three years.

Hauling companies don't have many options for dealing with higher diesel prices. Fortunately, for the three Maryland solid waste companies, the county council president said the county will renegotiate “with all companies that use gasoline.”

Another option is to include fuel surcharge clauses in hauling and recycling contracts. These clauses allow surcharges when fuel costs rise. In the long run, those clauses probably will be common. In the short run, let's pray for a mild hurricane season.

Opinions in this column do not necessarily reflect the National Solid Wastes Management Association or the Environmental Industry Associations. E-mail the author at: cmiller@envasns.org.

The columnist is state programs director for the Environmental Industry Associations, Washington, D.C.