Record diesel prices stun local businesses

With Sonoma County diesel prices hitting a record $3.80 a gallon Wednesday, businesses that operate trucks and machinery are passing some of the cost on to customers.

Absorbing rising diesel prices is increasingly difficult for businesses, with prices up 72 cents a gallon from a year ago. Back then, businesses were stunned by the pace of price hikes, but the latest run-up is hitting harder, several companies said.

Andy's Produce, a Sebastopol food retailer and wholesaler, is raising prices and cutting costs to offset a 20 percent increase in its fuel costs.

"The delivery people in the middle, like we are, can only absorb so much," said Dee Skikos, whose family owns the company.

Clover-Stornetta Farms, a Petaluma dairy, goes through more than $80,000 in diesel every month to keep its fleet of delivery trucks on the road. Its fuel costs are up 21 percent over the past year, which trickles down to milk, cheese and yogurt prices.

"Ultimately, you're going to have to attempt in some form or fashion to get that out of the marketplace. It's a trend that really affects us," said Marcus Benedetti, president of Clover-Stornetta.

A month ago, a gallon of diesel cost $3.54 on average in Sonoma County. By Tuesday it was up to $3.78, and it rose to $3.80 Wednesday. Nationally, diesel also set a record Wednesday at $3.61 a gallon.

Diesel prices won't decline anytime soon, according to federal energy analysts and local oil companies. The primary reason is world oil prices are at unprecedented highs, they said.

"As long as you see crude continuing to go up and maintaining its high level, the refined products typically follow suit. We're still waiting to see how much more we're going to see them rise," said Clif Hill, co-owner of Royal Petroleum, a Santa Rosa commercial fuel company that sells diesel and gas to contractors, truckers and other commercial accounts.

Gone are the days when diesel fuel was typically cheaper than gasoline. Diesel has consistently cost more than gasoline for more than seven years, according to federal energy analysts.

Worldwide demand for diesel and other fuels has been increasing steadily. Supplies are tight because demand has outpaced refining capacity, particularly in California. The transition to low-sulfur diesel fuel, which started in California and is now spreading across the nation, has increased the cost of producing and distributing diesel fuel. Also, the federal excise tax on diesel fuel is 6 cents higher per gallon -- 24.4 cents -- than the tax on gasoline.

More companies are tackling volatile diesel prices by purchasing fuel through futures contracts. Such purchases are typically made in winter when futures prices usually are lowest, locking in costs for summer when prices often are highest, Hill said.

An increasing number of Royal Petroleum customers buy futures contracts through the company.

"You want to take out as much risk as you can. Rather than gambling on what the market will give you, you can essentially know exactly what your price will be and you can budget for it," Hill said.

As prices soar, businesses that rely on diesel trucks and machinery have few other options. Modernizing fleets can increase fuel efficiency, but savings are more than offset by higher prices at the pump, they said.

Operating more than 40 trucks, Andy's Produce hauls the products it sells wholesale to markets and restaurants. The company also ships for local food and wine producers.

"We're not passing all of it along. We're working on a little less percentage just to keep our customers," Skikos said.

In addition to raising prices, Andy's is cutting some employee hours and limiting overtime. It might limit seasonal hiring in the spring and summer.

Clover-Stornetta may postpone plans to expand its territory in response to rising fuel prices, Benedetti said.

Last year, the company expanded into the Sierra Nevada foothills, he said. The company's fleet of 50 large trucks average more than 300 miles per day delivering dairy products to stores across Northern California. Other distributors ship Clover products into Southern California, Nevada and Arizona.

"It definitely plays into the decision to expand," Benedetti said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.