California Shortfall Threatens to Further Strain Fuel Availability
A diesel-fuel squeeze emerging in California could become a national supply chain problem, exposing structural weaknesses in how goods move, how energy is managed and how policy decisions are sequenced.
At the center of the disruption is a simple reality: Nearly every product, regardless of how it enters the country, completes its journey by truck. And trucks run on diesel.
“Which transportation modes do you think will be the most impacted by this? The short answer is all of them,” says C.J. Nord, C.P.M, CSCP, founder of Supply Chains for Good, a Los Angeles area-based initiative which leverages supply chain methodologies to tackle pressing societal issues.
“But in terms of severity, it’s truckload and less-than-truckload (LTL). Bear in mind that everything that comes off of the air, rail and ocean is going to get to that final destination on a truck. So really, we’re back to the diesel shortage.”
The California fuel situation is creating even more indigestion for supply management organizations already challenged by rising fuel costs and potential operational risk since U.S. and Israeli forces struck Iran on February 28. The Middle East conflict and continuing tensions around the Strait of Hormuz, which 20 percent of global oil trade typically passes through, has tightened supply and shifted cost structures across industries.
Over the past month, fuel surcharges — typically 20 percent to 30 percent of trucking line-haul rates paid by Blount Fine Foods — have surged to roughly 40 percent to 45 percent, says Heidi DeMello, CPSM, senior vice president of supply chain for the Fall River, Massachusetts-based company. The increase has pushed total freight costs up by about 15 percent in many lanes, even where contracts are in place.
“This is a real-time scenario,” DeMello says. “(Carriers) are filling at the pump. As the commodity changes, their overhead changes.”
Fuel surcharges are notoriously difficult to control. Unlike base freight rates, they usually float with market conditions, meaning that long-term contracts do not lock in protection for shippers when prices spike.
The cost shock is hitting the most exposed parts of the transportation network first — especially truckload and LTL. Parcel networks have some insulation due to partial electrification, while rail is less sensitive to fuel surcharges, DeMello says.
“The only thing you can really do to reduce spend is to make sure that you’re filling the trucks,” she says. “You’re going to pay the same line-haul rate per pound for 20,000 pounds that you would for 40,000 pounds. The fuel surcharge is the same for that full truck, no matter how many pounds you put on it. So, the best way to mitigate that is to ship full truckloads.”
A Fuel Flashpoint in California
While her company is primarily dealing with the Middle East-related fuel fallout, DeMello says she is keeping an eye on the situation in California, a significant food basket that produces a third of U.S. vegetables and 75 percent of the country’s fruits and nuts, among other products.
The state’s unique fuel requirements — including a specialized diesel blend — limit its ability to draw supply from other regions. Meanwhile, geopolitical disruptions, including limited shipments through the Strait of Hormuz, have constrained key fuel production inputs.
Last week, the average diesel price in California reached US$7.63 per gallon, according to AAA, underscoring the severity of the situation.
Compounding the uncertainty is a lack of transparency, with no single, aggregated view of fuel supply and demand across the supply chain. Asked how long supplies in California might last, Nord says, “The best answer is that I don’t know. … And I’m not sure elected officials have a good answer to that question. Nobody seems to be running the math.”
Some estimates suggest California could maintain supply into late summer, but those projections are far from certain and are heavily dependent on policy decisions and global developments. The stakes extend well beyond the borders of the Golden State.
In addition to being an agricultural and manufacturing hub, California’s ports handle roughly 40 percent of the nation’s containerized imports. About half of that volume is loaded and shipped to other states, usually by truck.
The situation is also exposing deeper tensions in the transition to cleaner energy: “From what I’ve read, it seems like California has the ability to produce or refine more oil,” DeMello says. “But its regulations are putting (the state) out of that market.”
Too Much, Too Soon on Sustainability?
California has aggressively pushed toward electrification of transportation, including heavy-duty trucks. But some experts say those mandates have outpaced infrastructure readiness and overlooked key operational realities.
Heavy-duty electric and hydrogen trucks can weigh as much as 10,000 pounds more than their diesel counterparts, reducing the amount of cargo they can legally carry under existing road weight limits. That effectively raises the cost per unit shipped — an inflationary pressure that is not widely discussed.
“Because you have to load about 10,000 pounds less on those vehicles,” Nord says, “the landed cost of goods goes way up.”
The issue is particularly acute at ports, where trucks move containers to nearby distribution centers. Reduced payload capacity could slow throughput at major gateways like the Ports of Los Angeles and Long Beach, creating bottlenecks.
Meanwhile, electrification faces another constraint: energy availability. Rising demand from data centers and AI has accelerated electricity consumption, straining infrastructure that was already under pressure and on putting focus on what some experts believe is a failure to sequence policy decisions properly.
Infrastructure and energy availability, they say, must be aligned with mandates and policy goals. Transitions must be managed with a system-wide view.
Nord advocates for creation of an independent supply chain governing body that can provide oversight, set readiness thresholds and coordinate major policy shifts — much like the U.S. Federal Reserve does for monetary policy.
“I care about the environment, too,” says Nord, “but the (supply management) profession needs to have a seat at the table when these regulatory decisions are made. Right now, nobody is minding the shop.”
What Companies Can Do Now
Higher fuel costs are amplifying instability in a supply side of trucking that was already fragile. In recent years, driver shortages, aging equipment, weak freight demand and carrier bankruptcies have thinned capacity.
Carriers have become increasingly selective, DeMello says, prioritizing higher-paying loads and rejecting contracted freight when better opportunities arise. That dynamic is raising the likelihood of service disruptions, rerouting and delays.
“Nobody comes into the industry wanting to be a new driver,” she says. “Carriers are struggling to keep the equipment updated and maintained because it’s expensive. The only way that they can make money is to keep the trucks on the road. That means less preventive maintenance, so you get breakdowns, and you have drivers that are cherry-picking lanes.”
DeMello adds, “All of these things were happening at once. Now, you’ve got increased freight rates on top of it.”
Companies navigating the disruption need to tighten execution across the board, Nord and DeMello say. In addition to filling trucks to capacity, shippers are focusing on efficiency-maximizing measures like avoiding partial loads, planning backhauls to reduce empty miles, delaying nonessential shipments and favoring domestic suppliers where possible.
Also, visibility is critical. Transportation management systems can aid in rerouting freight as conditions change, and Nord says companies should map supply chains more deeply — not only for direct suppliers but also for those stretching all the way back to raw material extraction.
“Secure your supply chain upstream, secure your supply chain downstream,” Nord says. “This is the time to reconfirm everything.”
(Photo credit: Getty Images/Welcomia)