Diesel Prices Matter to Electronics Supply Chains

We’re back together again for WISDOM WEDNESDAY! In this post we’ll dip into ocean travel and in so doing harbor our views of how those voyages fuel the land travel of global electronics supply chains. Wisdom Wednesday is brought to you by µEMS, a division of Micron Corporation.

Hormuz Places Diesel in Dire Strait

It’s been hard to escape the continuous news updates about the Strait of Hormuz and the restrictions that are hindering the flow of approximately 20% of the world’s crude oil. The flow of crude oil is important and the expansion of hostility to the Bab al-Mandab Strait connecting the Red Sea and the Gulf of Aden have restricted that flow even more. Yet, the oil is flowing from Hormuz again and approaching pre-conflict levels from January of this year. The WSJ reported that the mix of Middle East exports from the Gulf of Oman, the Red Sea, and the Strait of Hormuz is back above 160 million barrels per week close to where it was before the conflict began.

As consumers, almost none of us buys a barrel of crude oil. What consumers buy, or at least eventually pay for, are products that are refined from crude. These are gasoline, diesel, and jet fuel. Most people don’t buy their own jet fuel, but they do pay for tickets to fly on airplanes. Professional truck drivers, companies that own trucks or fleets of trucks, and equipment operators such as farmers and construction workers (or the organizations they work for) pay for diesel. Gas is used and paid for directly at the pump for a wide variety of individuals and businesses.

Each of these three products commonly refined from crude oil is described on a scale of heavy to light components. These gradations certainly relate directly to their densities yet are more accurately defined by the distillation towers that are the primary pieces of equipment used in crude oil separation and refinement. Distillation towers are heated cylindrical upright tubes, often of massive dimensions. Some of the largest ones in the United States are located in the PADD 3 Gulf Coast region (Petroleum Administration for Defense District III). Many range from 225 to 305 feet tall and 20 to 30 feet wide.

Gas is the lightest distillate and is removed from the top of the tower, jet fuel is often referred to as “the middle cut,” and diesel being heaviest is fractioned from the bottom of these columns. From a 42-gallon barrel of refined crude oil: 19 to 20 gallons of gas product is distilled, 11 to 13 gallons go into diesel (and heating oil), and 3 to 5 gallons of jet fuel are produced. Each of these three refined products is important to the U.S. economy. One stands out as having the greatest influence on inflation. The heaviest weighs most on the U.S. economy.        

Why Diesel Matters

Energy is the reason diesel matters. Diesel contains the most megajoules per liter of the three refined products under consideration: 38.6 (MJ/L) versus 35 (MJ/L) for jet fuel and 34.8 (MJ/L) for gasoline. That’s why trucks with loads significant to the U.S. economy use diesel as fuel. The Bureau of Transportation Statistics within the U.S. Department of Transportation has provided the latest complete data (2024) for the modes of transportation used to carry products throughout the U.S. These modes include: Truck, Rail, Water, Air, Pipeline, and Others including (significantly) Mail. Trucking accounted for the most by far. Trucking accounted for 11,098 ($B) out of 14,981 ($B) in total value of shipments in 2024. It accounted for 11,905 (million Ton) out of 17,656 (million Ton) of weight shipped. The value ($) and weight (Ton) matter. According to the Standard Classification of Transported Goods (SCTG) for Code 35 goods described as “Electronic and Other Electrical Equipment and Components, and Office Equipment” electronics are high-value/low-weight products. Because of these factors, trucks that use diesel are the mode of transportation that carry most electronics throughout this country.

The economic forces of restrictions upon transportation and increased costs due to refined fuel are working their way through the U.S. economy. Electronics are embedded throughout this economy and are sensitive to transportation costs. One need not be a prophet to see the price increases up on deck.

That brings us to the end of another post of Wisdom Wednesday. Sharing what we understand about the forces that affect the electronics manufacturing industry and the supply chains it utilizes is good for the entire industry. Get in touch with MICRON CORPORATION to discuss any topics you find noteworthy at info@microncorp.com.

Related reading: Critical Minerals and Rare-Earth Elements. Explore more Wisdom Wednesday articles on electronics manufacturing and supply chains.