Leadership1 publisher2 min readPublished
Iran-war diesel surge will hit grocery prices within weeks, Axios's Nathan Bomey says
Axios reporter Nathan Bomey says the Iran war's diesel surge, felt first by truckers and farmers, will show up in grocery prices within weeks, if not days. Operators paying for freight or farm inputs face a cost increase that lands inside the current quarter's budget.
The Board Room · Leadership desk
What happened
- Bomey traces the surge to the closure of the Strait of Hormuz after the US and Israel attacked Iran this year, a disruption to the whole global energy economy.
- He expects diesel to have a big effect on food inflation, arriving after several years of food price increases that followed the pandemic.
- Heating oil, used mainly by households in the Northeast to heat their homes, is caught up in the same price surge.
- Rail competes with trucking but suits only certain products, while compressed or liquid natural gas and biodiesel can fuel some trucks.
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Why it matters
- constraint Fleet owners can only get away from the fuel cost by writing off rigs they already own, so relief this year has to come through what they charge customers.
- exposure Food buyers are more likely to see the full increase passed through, because farmers already absorbing trade-war and climate costs have less margin left to take on diesel.
- cost Retailers stocking oil-based holiday goods will be charged for crude twice, once in the resin and again in the trucking, just as they set seasonal prices.
- decision Shippers whose freight suits rail can price it against trucking in this cycle, an option most goods moving by road do not have.
"I think the impact is imminent," Nathan Bomey, a business reporter at Axios, told Today, Explained co-host Noel King [13][14]. He put a clock on it: "We're not talking about months; we're talking about weeks, if not days, before people will start to notice increases, especially in the grocery aisle" [6].
The route runs through trucks. "Most products in America are shipped along the road via trucks," Bomey said, and diesel prices "directly affect their cost of doing business, which then eventually trickles down and affects the consumer" [4][5]. The word "eventually" sits oddly beside "weeks, if not days." His own explanation settles it. Fresh food has to be shipped every week, so groceries show the increase first [7]. By the same logic, goods restocked less often should lag.
Some goods take the cost twice. Bomey's example is a holiday toy made with a resin priced off crude oil, then trucked to Walmart on diesel; "all of these things add up and will probably lead to higher prices," he said [8]. Farmers carry a similar stack, with diesel landing on costs already raised by trade wars and climate problems, and it feeds into the prices they charge [10]. Vox describes diesel as the lifeblood of shipping, agriculture and heavy industry, and says truckers and farmers are taking the first blow [3].
The case for moving early rests on one reporter's reading of the supply chain, given in a single interview [14]. The interview does not include a diesel price or an estimate of how much of the increase reaches the shelf. I think the direction is sound, because the chain Bomey describes is short and easy to follow. The size of the adjustment is something each operator will have to set from its own freight data.
The decision splits along two clocks. Repricing freight and supplier terms is this quarter's choice, and a contract signed now at pre-surge rates sets next quarter's margin. Changing fuel or freight mode is a capital choice. Trucking companies are invested heavily in big rigs, and switching fuels would mean scrapping that investment, Bomey said [11]. "Diesel trucks are not really going anywhere immediately," he said [16].
What to watch
- Whether shipping through the Strait of Hormuz resumes, since Bomey names its closure as the main cause of the energy disruption.
- Grocery price readings over the next several weeks, which will test Bomey's call that increases arrive in weeks, if not days.
- Holiday-season pricing on oil-based consumer goods such as toys, where resin and freight costs arrive together.