China’s surging diesel prices ripple across logistics supply chain ahead of Singles’ Day shopping holiday

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In recent weeks, truck driver Wang Ping has started changing the route of his regular 5,000km (3,100 miles) round trip from the central Chinese province of Hubei to the Pearl River Delta in the south.

With the price of diesel now above 7.2 yuan (US$1.125) per litre from 5 yuan earlier this year, Wang has been making new stops to meet with illicit fuel sellers because he can no longer afford to fill his 49-tonne truck at regular petrol stations.

Diesel prices in China hit 8,023.2 yuan (US$1,254) per tonne in the second half of October, according to the National Bureau of Statistics, marking 64.4 per cent year-on-year growth.

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The sharp increase in prices has come at a critical time for the logistics industry ahead of peak shopping and delivery season. China’s Singles’ Day, which is the world’s largest online shopping festival, had kicked off and drivers face earnings pressures when their expenses rise.

Already suffering a low wage, Wang – who is one of China’s army of 30 million truck drivers – has seen his take home pay slashed on top of a rise in toll fees this year.

“It means I would lose 1,000 yuan in a single trip instead of making any money,” Wang said. “We also stay off the motorway to save money for the fuel and toll fees, but that means we drive [on smaller roads] causing more fatigue and safety risks on the way.”

Diesel is now more expensive because the cost of crude oil – from which diesel is derived – has shot up with the world’s industrial recovery, and due to new demand for it as an alternative fuel amid China’s recent power crunch.

In some parts of the country, the tight diesel supply has even resulted in fuel rationing.

As a result, more drivers are choosing to reduce the number of trips they do, which is slowing the freight and deliveries supply chain.

The delivery of orders in October was much slower than before.

Li Bing

“The delivery of orders in October was much slower than before. My customers have complained to me a lot,” said Li Bing, operations manager at a Guangzhou-based online shopping platform.

“The rising diesel price is pushing up our costs,” said a Wuhan-based regional manager of a major logistics company, who did not want to be named. “The cost of filling up a semi-trailer truck has increased by 200 yuan to 300 yuan recently, which means the cost per 100km has risen 20 yuan to 30 yuan for each truck.”

China’s top economic planning agency, the National Development and Reform Commission (NDRC), has attributed the tight supply of diesel to “the continuous increase in oil prices in the international market”, culminating with “peak consumption season in China”.

Demand for oil shot up after most major economies began to recover from the pandemic this year. Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have rejected calls from the United States to increase supply, which has also pushed up prices.

Brent crude oil was traded at around US$83.6 per barrel on Monday, more than doubling in price from a year ago.

China’s power crunch, caused by a coal shortage that has swept the nation since mid September, has also impacted supply and demand for diesel, according to a report last month by OilChem, an energy and chemical information provider in China.

Power rationing has increased demand for diesel-generated electricity, while the high energy-consuming oil refining industry has had to restrict production.

In a bid to increase supply and stabilise prices, the NDRC said on Sunday it had coordinated with the National Energy Administration and China’s two major oil companies, PetroChina and Sinopec, to increase supply of refined oil.

Ling Yiqun, deputy general manager of Sinopec, was quoted in the NDRC notice as saying people’s livelihood and retail sales would be given priority and the company would make sure there was stable supply at its gas stations across the country.

At present, the supply and demand of diesel in some areas is tight

Ling Yiqun

“At present, the supply and demand of diesel in some areas is tight. We think it is short-term, and the situation is expected to improve soon,” Ling said.

Chinese authorities have also suspended diesel exports for November to alleviate the domestic shortage.

The ban is likely to stay in place for the rest of the year, energy and commodities market intelligence provider JLC said in a note last week.

The National Food and Strategic Reserves Administration said late last month it would release petrol and diesel reserves to boost supply and stabilise prices, but it did not disclose how much would be available to the market.

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Kang Wu, head of Asia analytics at S&P Global Platts, believes the move to release some state reserves is aimed at calming segments of the domestic market.

“The agencies in charge of the release have only limited amounts of petroleum product reserves, as such the volume is likely to be small and symbolic, reflecting the government’s intention to ensure supply,” said Wu.

Wu expects global oil supply to remain tight at present while S&P Global Platts estimates prices for the Dated Brent crude benchmark to ease in the first half of 2022.

The tight supply has prompted China’s leaders to emphasise the importance of energy security in recent weeks.

If fuel prices continue to rise, it will certainly affect the stability of logistics and transport

Joe Li

During a visit to a state-owned oilfield in Shandong province in October, President Xi Jinping said China must secure energy supply in “its own hands.”

Still, small manufacturers are worried about whether their goods will be delivered to buyers on time.

“If fuel prices continue to rise, it will certainly affect the stability of logistics and transport,” said Joe Li, a male underwear manufacturer in Guangzhou.

“For example, if truck drivers go on strike, as they did two years ago, then it will definitely affect our deliveries during Singles’ Day shopping season.”

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