$5.60 Diesel: What Is It Really Doing to a Ground Transportation Rate?

Diesel has climbed sharply as global supply concerns increase, but motorcoach and limousine operators don't normally sell transportation by the mile. We sell hours, days, shuttles, transfers, and trips. That makes understanding the cost underneath the rate more important than simply watching the price at the pump.

by Dhinel “Danny” Biyanwela

I was watching Bloomberg this week, and the conversation turned to diesel prices and what's happening with global fuel supply. With the Iran conflict, pressure on refined-product markets and everything else happening globally, diesel has moved quickly enough that I wanted to understand what it actually means for ground transportation.

As of the latest EIA weekly report, the U.S. average for on-highway diesel is $5.599 per gallon, compared with about $3.734 a year ago. That's roughly $1.87 more per gallon, or about a 50% increase in a year. The regional differences are significant too. The Midwest is around $5.57, while California is above $7.20. The supply side deserves attention as well: U.S. refineries have been running at very high utilization while global demand for U.S. diesel exports has increased and distillate inventories remain particularly tight in parts of the East Coast.

For operators, though, I think there's another part of this story. We don't normally sell transportation the way trucking companies do. A trucker can watch diesel move and calculate what it means against a rate per mile. Motorcoach, limousine and charter operators usually sell round trips, hourly service, day rates, shuttles, pickups and returns, and one-way transfers. The customer may never see a mileage rate, but the equipment is still accumulating miles, burning fuel and consuming maintenance. So the question I wanted to answer wasn't what operators should charge. It was simpler: How can we tell what these changing costs are actually doing to the rate we're already charging?

THE NUMBERS

Expense/Indicator	Current Signal	Why I'm Watching It
U.S. diesel	$5.599/gal.	About $1.87 above a year ago
California diesel	$7.218/gal.	Major regional exposure
Maintenance & repair	+6.6% YoY	Fleet costs still moving
Maintenance & servicing	+7.3% YoY	Cost pressure
Parking & tolls	+3.5% YoY	Direct trip expense
Operators paying $20K+ liability/unit*	49%	Insurance pressure

*Insurance figure comes from the ABA Foundation's national motorcoach insurance study. The maintenance, repair, parking and toll figures are broader BLS consumer indexes rather than motorcoach-specific cost indexes, so I look at them as market indicators—not as a substitute for an operator's actual accounting.

$5.60 DIESEL: THE COST UNDER THE RATE

There are plenty of places to watch fuel prices, but two resources are probably enough for most operators. The U.S. Energy Information Administration's weekly diesel report gives national and regional on-highway diesel averages. AAA Fuel Prices provides daily state and local information, which can be more useful when a trip is operating somewhere considerably above or below the national average.

Neither is better than the company's own fuel-card statement or bulk-fuel invoice. That's ultimately what the operation actually paid. But EIA and AAA provide independent benchmarks operators can watch without having to follow commodity markets every day.

The important distinction is that using mileage to understand cost doesn't mean selling transportation by the mile. Take a coach expected to operate 300 total miles. If that coach historically averages 5.5 MPG, the trip will consume approximately 54.5 gallons. At $5.599 diesel, that's about $305 in fuel. If diesel were still $3.734, the same trip would cost about $204. Nothing about the way the customer buys the trip has changed, but roughly $101 has disappeared from the economics of that movement.

That calculation becomes even more important with deadhead. A customer might purchase a 200-mile one-way transfer, but if the coach returns empty, the equipment actually operates 400 miles. At 5.5 MPG and $5.599 diesel, that's approximately $407 of fuel. At last year's diesel price, it would have been about $272. That's roughly $135 of additional cost on one movement from fuel alone.

The customer doesn't necessarily need to see any of this. The operator does.

HOURLY, DAY RATE, SHUTTLE OR ROUND TRIP: SAME RATE, DIFFERENT ECONOMICS

This is where ground transportation gets more complicated than simply calculating cents per mile. Two trips sold for exactly the same price can produce very different financial results.

Consider an operator charging $175 an hour with a five-hour minimum. That's an $875 reservation. One five-hour corporate movement might operate 35 miles. Another five-hour charter might continuously move passengers and cover 150 miles. The customer sees the same hourly structure, but the fuel, maintenance and equipment usage underneath those two reservations are completely different.

Day rates have the same issue. One $1,600 day might involve dropping a group at a convention center, parking for most of the day and returning them to the hotel. Another $1,600 day could involve 400 miles of sightseeing. They're both technically a day of coach service, but they're not the same day financially.

Shuttle work introduces another variable because mileage alone doesn't tell the story. A hotel-to-convention-center loop may only be a few miles each way, but the coach could operate continuously for eight or ten hours with repeated acceleration, stopping, loading, traffic, air conditioning and idling. In that situation, actual gallons consumed and idle time may tell us more than mileage alone. Many modern telematics systems already collect this information; with diesel around $5.60 nationally, that data becomes financial information instead of simply driver-performance information.

Pickup-and-return work can hide cost in the middle of the day. Does the coach stay near the destination? Does it return to the garage? Does the driver wait? A morning pickup and afternoon return could create passenger miles, deadhead, parking, tolls, waiting time and additional driver expense. Again, the customer still sees one pickup-and-return price. The economics underneath it depend heavily on what happens between those two movements.

That's why I don't think there is one universal cost-per-mile number that solves this. Miles matter, but so do hours, utilization, idle time, driver cost and what the equipment does when the customer isn't sitting in it.

WHAT OPERATORS ARE ACTUALLY DOING

I went looking for what limousine and motorcoach operators are saying about the current fuel situation, and what I found was probably more useful than finding one supposed "best practice": there isn't one answer.

In a Chauffeur Driven discussion with operators, some companies said they were adjusting their overall pricing dynamically as expenses changed. Golden Limousine in Michigan described tying fuel adjustments to an index so there was a measurable benchmark behind the change. Greene Worldwide Transportation in Atlanta said it had increased an existing fuel surcharge from 10% to 12%. K&G Coach Line in Illinois described continuing to absorb increases for competitive reasons unless diesel crossed its internal threshold. Teddy's Transportation said it watches AAA's local fuel data and measures the increase against an average trip before adjusting its transportation charge.

Chauffeur Driven — Handling Fuel Surcharges

Coach operators outside the U.S. are dealing with many of the same questions. RouteOne has reported operators weighing fuel surcharges, absorbing increases and reconsidering contract pricing while trying to remain competitive. Some operators have also raised concerns about the physical availability of diesel, not simply its price.

What I took from those discussions isn't that everybody should add a surcharge. It's that operators are approaching the same problem differently depending on their customers, contracts and markets. Some are passing the increase through. Some are incorporating it into the base rate. Some are absorbing it. Some are using published indexes.

Absorbing the increase isn't necessarily wrong either. There may be a good customer relationship or competitive reason for doing it. But financially there is a difference between deciding to absorb $150 and finding out later that you absorbed $150 without realizing it.

A SIMPLE RATE CHECK FOR GROUND TRANSPORTATION

This is probably the most useful thing I came away with from the research. We don't need to turn motorcoach companies into trucking companies or tell operators what their margins should be. We can simply put a cost calculation underneath the way transportation is already sold.

Rate Sold to Customer	Numbers to Check Internally
Round Trip	Total operating miles, fuel, driver hours, tolls, parking, overnight expenses
Hourly	Hours, expected mileage, driver cost, fuel and minimum time
Day Rate	Total hours, total miles, fuel, driver expense, parking/tolls
Shuttle	Hours, loops, number of vehicles, gallons consumed, idle time, driver hours
Pickup & Return	Both movements, waiting vs. deadhead, driver hours, fuel, parking
One Way	Loaded movement plus empty return or repositioning

From there, the internal estimate doesn't have to be complicated:

Driver Cost + Estimated Fuel + Tolls/Parking + Maintenance Reserve + Insurance Allocation + Equipment/Finance Cost + Other Direct Trip Expenses = Estimated Trip Cost

The operator decides what happens after that.

Fuel is probably the easiest expense to calculate because we have gallons, MPG and a current price. Maintenance takes a little more work, but the company's own accounting can produce a useful number. If a fleet spent $300,000 on maintenance during the previous 12 months and traveled 600,000 miles, historical maintenance expense was approximately $0.50 per fleet mile. That doesn't mean the company should add 50 cents per mile to every quote. It means management now has another number available when evaluating what a particular movement actually costs.

Insurance can be looked at similarly without pretending there's one perfect allocation method. Annual insurance expense can be divided across fleet miles, coach days, operating days or revenue hours depending on how the company looks at its business. The purpose isn't to create an accounting rule for the industry. It's to make an expense that normally sits at the company level visible when looking at the economics of individual work.

This is where a $1,500 day rate becomes more informative. The customer still pays $1,500. Internally, however, the operator can see whether that day historically cost $900 to produce, $1,100 or $1,400.

That difference matters a lot more than the rate itself.

FIVE RESOURCES WORTH BOOKMARKING

Operators don't need Bloomberg terminals or commodity analysts to keep an eye on this. A few resources cover most of what matters.

1. EIA Gasoline and Diesel Fuel Update — Weekly national and regional diesel prices. This is probably the cleanest independent benchmark for fuel.

2. AAA Fuel Prices — Daily state and local averages, useful when comparing operating markets.

3. Bureau of Labor Statistics CPI — Broader inflation data covering maintenance, repair and other transportation-related expenses. I would use this to identify trends, not to replace actual company expenses.

4. Fuel-card and bulk-fuel reports — This is more important than any national index because it shows the company's actual price, gallons purchased and sometimes MPG by vehicle.

5. Accounting and telematics reports — Actual driver cost, maintenance expense, MPG, idle time, deadhead and utilization are where the national economic story becomes the operator's own financial story.

The national data tells us what's happening around us. The internal data tells us what's happening to us.

BOTTOM LINE

Diesel at $5.599 is getting attention because it's something every operator can see immediately at the pump. The global supply situation makes it worth watching, particularly while refined-product markets remain tight and geopolitical conditions are changing quickly. But diesel is only one part of a transportation rate. Maintenance, insurance, labor, equipment, tolls, parking and deadhead are all sitting underneath the same customer price.

I don't think the takeaway is that motorcoach and limousine operators need to start pricing like trucking companies. We don't sell transportation that way. We sell time, equipment, availability and service through hourly rates, day rates, shuttles, round trips, pickups and returns, and one-way movements.

Mileage and cost-per-mile calculations can still be useful internally without ever appearing on a customer quote.

A $1,500 day rate is still a $1,500 day rate. What's changing is what it costs to produce that day.

With diesel roughly $1.87 per gallon higher than a year ago and other operating expenses still moving, that's the number I'm interested in watching.

Not because somebody else needs to tell an operator what their rate should be.

Because knowing what's underneath the rate makes it a lot easier to understand what the business is actually producing.

Sources

U.S. Energy Information Administration — Gasoline and Diesel Fuel Update
AAA — Daily Fuel Prices
Bureau of Labor Statistics — Consumer Price Index
Chauffeur Driven — Handling Fuel Surcharges
RouteOne — Coach and Bus Industry Fuel Coverage

About the Author

Dhinel “Danny” Biyanwela works in motorcoach and ground transportation with experience in operations, vehicle sales, finance and fleet management. Through The Motorcoach Insider, he writes about the business behind transportation and the economic changes affecting independent operators.