Supply Chain News Bites - Only from SCDigest
 

-May 1, 2007

 
 

Will Growth in Consumer Diesel Usage Put Upward Pressure on Costs for Carriers?

 
 

Marathon’s Move to Process more Diesel may Signal Trend; U.S. Lags far behind the Rest of the World

 
 

SCDigest Editorial Staff

 
 

A variety of factors may cause U.S. automakers to push more vehicles that use diesel fuel into the U.S. market. As refiners move to catch the trend, it’s possible that increased total demand for diesel will push prices up for carriers and shippers.

The U.S. lags far behind the rest of the world in diesel usage for passenger vehicles. In 2005, the last year for which data is available, only 3.2% of new personal vehicle sales were diesel-based, according to JD Powers. Contrast that with 50% of new vehicle sales in Europe, and 7.4% in Asia. However, JD Power estimates the U.S. number will approximately double by 2011 to 6.6% of new vehicle sales, exceeding sales of so-called hybrid vehicles. Some people think even that number may be low.

The key advantage for diesel – about a 30% improvement in miles per gallon over conventional gasoline. This means diesel not only would have a strong economic appeal for consumers pinched by spiking gas prices, but also means there is less carbon dioxide produced per driven mile as well, making it more friendly to global warming concerns.

Diesel usage has been challenged for producing other types of pollution, however, and that has held back its growth. Key will be the ability of automakers to produce diesel engines that can meet current and likely even stiffer regulations on vehicle emissions. Honda GM, Ford and Chrysler are all devoting significant resources towards diesel-based passenger models.

Betting on that trend, Marathon Oil recently announced it was substantially expanding a refining facility in Louisiana that already makes about twice as much diesel fuel than regular gas. Marathon expresses a very bullish view on the growth of diesel.

The potential risk to carriers and shippers – if consumer demand moves faster than refining capacity for diesel, it will put upward pressure on diesel costs.

 
     
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