Diesel Prices Continue To Soar

The Dynamic Wealth Report
December 5, 2007

How Diesel Prices Are Affecting Your Investments

Additional fuel costs need to be passed along to someone and that someone is you and me.

The prices of diesel really started creating a stir in 2005 when it passed $2.30 a gallon.  Some in the industry viewed this as a critical point where many truckers start to lose money.  Truckers traditionally measure their profits in pennies per mile driven and cutting costs is the only way to survive.  Nowadays diesel prices are topping $3.50 a gallon and profits in the industry are hard to find.

Clearly, making a living from trucking is very difficult.  While rising prices can sometimes be passed along to customers, the volatility of that price increase is not always perfect.  A few months back, many large consumers of fuel started adding surcharges to their invoices.  Everyone from cruise lines to airlines to global transportation companies are doing it now.

Yet, as you might have guessed, there is a problem.

Those that stick their customer with a fuel surcharge are sometimes still losing money.  Diesel prices have been moving up so quickly, 18% since September alone, that the fuel surcharge is not covering the actual cost. This problem has been exposed most significantly in the companies that make up part of the Dow Jones Transportation index.

-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?

Our own small-company specialist, Robert Morris, has found a way to 'sniff out' tiny penny stocks on the verge of a major breakout.  And the timing for this has never been better.

You see, the system takes advantage of an obscure SEC regulation that sends penny stock prices through the roof.

We've seen some stocks gain 852%... 5,450%... even 17,496% in no time flat.

Click here for the details...
-----------------------------------

The iShares Dow Jones Transportation Index (IYT) hit a new 52-week low just a few days ago.  This index is made up of companies like FedEx
(FDX), United Parcel Service (UPS), Norfolk Southern (NSC), Overseas Shipholding (OSG), and Ryder (R).  You will notice something very interesting in the index; shipping and rail transportation companies are doing very well, while the trucking companies are continuing to struggle.

As the cost of trucking rises I believe companies with large quantities of goods to ship will look to other options.  Shipping and rail are the most likely choices.  If you are going to invest in transportation companies I would stay away from those with large exposure to diesel and look to trucking alternatives like shippers and rail companies.

Another way to play this situation is through the use of puts.  If you anticipate diesel prices to continue to rise, as I do, you may look to establish puts on some of the companies with the greatest exposure to these fuel price increases.

•  Wheat ($8.75 Per Bushel)

Back in September, we mentioned the potential constraints to wheat supply.  This week some of those issues have been impacting prices.  In Australia the drought has limited wheat supplies.  To add to the pain, Argentina had a recent frost which may have damaged wheat crops.  The price of wheat spiked on this news.

 Print Page                                                   Bookmark Us