A diesel pump at a gas station in Montreal on April 9. The price of diesel has climbed to a greater degree than that of gas since the war in the Middle East began.Christopher Katsarov/The Canadian Press
A federal break on taxes for diesel fuel is being welcomed by numerous industries that depend on transport and heavy machinery, but officials warn the measure alone will not make up for the sharp run-up in prices driven by the war in the Middle East.
Ottawa has suspended excise taxes for gasoline as well, but diesel fuel runs much of the economy and its price has climbed to a greater degree since the conflict began, affecting truckers, railways, heavy equipment operators, farmers and others. Many of them have instituted extra fuel charges that get passed on to their customers.
The government of Prime Minister Mark Carney this week said it would suspend taxes of 10 cents a litre on gasoline and four cents on diesel and aviation fuel from April 20 through Sept. 7. Provincial governments are also discussing the possibility of adjusting their take at the pump.
Canadian diesel prices have climbed as much as 43 per cent from before the U.S.-Israeli war on Iran, spiking to a recent national average high of $2.43 a litre from $1.70 in late February, according to Natural Resources Canada. It averaged $2.17 on Thursday.
The temporary tax cut amounts to a fraction of the price increase, said Carol Montreuil, vice-president, Eastern Canada, for the Canadian Fuels Association.
“Obviously, every penny counts in terms of helping people using diesel for all the other sectors that depend on moving product,” Mr. Montreuil said.
“But on the other hand, I’m sure these truck-driver associations would tell you they’ve seen an increase of over 50 to 60 cents a litre, so yes, four cents is welcome, but we’re a far cry from where we were at the start of the conflict.”
Canada consumes about 80 million litres of diesel fuel per day, compared with 118 million litres of gasoline, according to the association, which represents refiners and retailers.
Iran has essentially blocked crude oil tankers from passing through the Strait of Hormuz since the conflict began on Feb. 28. About a fifth of the world’s oil supply normally transits through that waterway.
As a result, oil and its products have surged to multiyear highs. Brent crude futures have hovered around US$100 a barrel, though they sank about 10 per cent on Friday after Iran said it would reopen the strait while a ceasefire in Lebanon holds.
Canada’s position as a net energy exporter will cushion the blow on the national economy, though Scotiabank Economics warned in a recent report that higher energy prices impose rising costs for essential items borne disproportionately by lower-income households.
Many truckers have instituted fuel surcharges, and those costs get passed on through supply chains. The Globe and Mail reported last week that food suppliers have already tacked surcharges onto their prices, and some of the extra costs are being passed on to consumers.
Maple Leaf Foods Inc., Tree of Life, Atlas Food and Beverage Inc. and CTS Food Brokers Inc. are among suppliers that have done so. In the case of Maple Leaf, a fuel-related surcharge adds up to $2,200 in additional costs per 20,000-kilogram tractor-trailer of food. In a letter to retailers, the company said it can no longer absorb the cost increases brought about by the war.
“Fuel is the second leading cost for fleets after labour, and stability in fuel prices is a key tool in the fight against inflation and keeping costs of goods down for Canadians,” Canadian Trucking Alliance chief executive officer Stephen Laskowski said in a statement in response to Ottawa’s tax suspension.
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Farmers as well as fishers were exempt from the federal excise tax on the fuel for their machinery. But in the case of agriculture, the price increase remains a pressure point for one of the economy’s most fuel-dependent sectors.
Brad Saluk, who grows grain northeast of Winnipeg, said his fuel costs for farm machinery have increased 35 per cent this year, while prices for his crops remain stagnant. That jeopardizes the operation’s profitability, he said.
“It’s a chain reaction and that chain is getting shorter and shorter for us to make a dollar,” said Mr. Saluk. “I feel like we’re pawns … We can’t survive without diesel.”
Heavy construction companies are being hit will higher fuel costs as bidding for summer work gets under way. Companies welcome the tax break but would have preferred it to be extended into the fall, when construction season ends, said Felicia Wiltshire, vice-president of the Manitoba Heavy Construction Association, whose 420 members include road builders, earthmovers, aggregate producers and others.
Diesel is just one item driving up costs as oil prices remain elevated, said. Prices for other oil-derived materials such as asphalt and PVC piping are also adding to costs, she said.
“That’s a piece we’re hearing from some of our industry members. In Manitoba, that’s something that we’re working specifically with our municipal governments and our provincial government to deal with some of that cost escalation, because the price of asphalt is going to increase,” Ms. Wiltshire said.
With a report from Toni De Guzman