Diesel is cheaper than regular gas right now thanks to a 'freight recession'

After soaring to record highs last year, diesel prices have fallen significantly in recent months, which experts say could signal a slowdowneconomy.

A downturn in the trucking and rail industries is one of the reasonsthe price of diesel has fallen by about one-third in the last six months. Cheaper fuel pricescould help cool the rateof inflation and provide some relief to consumers.

Many farmers are noticing the trend, especially as they work long hours in the seat of their tractors during spring seeding.

"There's been a huge drop in diesel prices," said Stephen Vandervalk, who receives diesel deliveries by the 52,000-litre truckload to his farm near Fort Macleod, in southern Alberta.

So far, he's planted about 60 per cent of this year's malt barley, durum wheat and canola crops on his 4,000 hectares of land.

"It makes a big difference, for sure," he said, adding he hopesprices continue to fall to more normal levels.

Shipping industryexperiencing drop in demand

The average retail price of diesel across the country was $2.30 per litre in November compared to about $1.53 per litre this week. Over the same time period, regular gasoline has decreased by a much smaller amount, from $1.74 to $1.59.

Commodity prices spiked in 2022 following Russia's invasion of Ukraine.

After all of the supply chain problems around the globe in recent years, experts say those logistical challenges have been resolved and the transportation industry is now facing what they call a 'freight recession.'

Around the globe, the shipping industry is experiencing a drop in demand and rates. Shipping giant Maersk has started cutting vessel speeds to save on fuel bills and reduced the number of ships it charters in an attempt to limit costs.

Canadian ports experienced a drop in volumes last year and the trend is continuing in 2023.

There isn't as much cargo to move in North America as consumers face increased borrowing costs and many stores have higher inventory levels than usual, said Craig Alexander, a former chief economist with Deloitte and TD Bank.

"The overall economy isn't contracting, but freight activity certainly is. I think the weakness in freightis a precursor to more broad-based weakness in the economy," said Alexander.

Some people are also shifting some of their spending away from buying products to services, such as travel and vacations that weren't possible during the pandemic.

Relief for shoppers

Diesel is the primary fuel used by the trucking and railway industry. A sustained drop in diesel prices could provide some relief to shoppers.

"We certainly saw it in the other direction. When energy prices spiked higher during the pandemic, many businesses passed on the higher transportation costs to the consumer. Well, if it's getting cheaper to bring the product into the stores, you would hope businesses would pass that along," said Alexander.

At the same time, lower fuel prices could help cool inflation pressures across the country, said Bank of Canada governorTiff Macklem during a speech to the Toronto Board of Trade last week.

"Demand for goods is slowing because higher interest rates are restraining household spending and the supply of goods is improving as global bottlenecks ease and lower energy prices reduce shipping and production costs. As a result, inflation is coming down quickly. We expect it will hit three per cent this summer, even as the economy continues to grow modestly," he said.

Canada's inflation rate decelerated to 4.3 per cent in March, down from 5.2 per cent the previous month.

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