Two companies that run on diesel told investors this week that their fuel surcharges mostly work. The money they lost anyway is the warning for every mid-sized business renewing 2027 prices right now: the costs that hurt arrive late, and under another name.
On October 28, the truckload carrier Werner Enterprises told analysts that fuel, along with some reserve development, had cost it about 12 cents a share in the third quarter compared with the second. Werner has fuel surcharges in its contracts. Its chief executive, Derek Leathers, put the recovery lag at roughly one week. The trouble was that diesel kept climbing, so the one-week lag kept repeating. As he put it, the lag "continues to hit you every time it moves again."
A day later GFL Environmental, the waste hauler, said elevated diesel would add about C$125 million to its costs this year. Its surcharges, management said, recover the direct hit. The chief financial officer, Luke Pelosi, expects to claw back C$105 million to C$110 million of it this year, and pointed to a further C$20 million to C$25 million of indirect cost that has not been recovered.
Those two calls say more about your 2027 than the Federal Reserve did. On the day of Werner's call, the Fed held its benchmark range at 3.75% to 4%, said inflation remains elevated, and recorded two dissents from officials who wanted another increase. That is the weather. The earnings calls show you where the roof leaks.
The professionals still leak
Trucking and waste collection have priced fuel risk for decades. Their contracts point at a published diesel benchmark and reset weekly or monthly. Even so, a fast spike leaks margin in two places: the gap between when the cost lands and when the formula catches up, and the costs the formula was never written to cover. Leathers added a third. The spread between wholesale and retail diesel, which normally runs about a dollar, shrank at times to around 50 cents, which blunted the surcharge further. Werner is now reworking how some customers' fuel programs are built.
The scale of the move explains why. AAA put diesel at $6.35 a gallon on October 25, against $3.66 a year earlier. GFL said its diesel costs in the quarter were up more than 60% on last year.
Most mid-sized companies have no equivalent machinery. A distributor, a contract manufacturer, a field-services firm with 200 vans: they sign annual or multi-year prices, often with no index at all, or with an escalator pegged to consumer inflation. If a carrier with a one-week lag loses money, an annual fixed price is a twelve-month lag.
Your budget is using the calm number
Look at where the September data actually sits. Consumer prices rose 3.7% over the year, and core inflation, which strips out food and energy, was 2.6%. Core is the figure planning teams and contract escalators tend to lean on, precisely because it looks steady.
The producer price index, published October 15, reads very differently. Final demand prices jumped 1.3% in September alone, the largest monthly rise since March 2022, and 6.3% over the year. Further back in the chain, processed goods bought by businesses were up 14.1% and unprocessed goods 21.5%. Transportation and warehousing services, a line most companies bury in overhead, were up 16%.
Read those figures as a queue. Crude and diesel stand at the front. Behind them wait resins, packaging, chemicals, freight, contract logistics and every supplier whose own cost base includes a truck. Almost none of them will send you an invoice marked "fuel." They will send a January price letter citing input costs, and it will land on a budget built around 3% and a customer book already repriced for the year.
Figure 1
Measure (12 months to September 2026) | Change | What sits there | How it reaches a mid-sized company |
|---|---|---|---|
Unprocessed goods, intermediate demand (PPI) | +21.5% | Crude oil and other raw inputs | Through your suppliers' suppliers; arrives last and is labeled least |
Transportation & warehousing, final demand (PPI) | +16.0% | Freight, storage, logistics | Carrier and 3PL rate increases, often filed under overhead |
Processed goods, intermediate demand (PPI) | +14.1% | Fuels, materials and components sold business to business | Supplier price letters at the next contract year |
Final demand (PPI) | +6.3% | Prices producers get for finished goods and services | What your own customers are being asked to pay elsewhere |
Consumer prices, all items (CPI) | +3.7% | Household basket, including fuel | The headline your customers quote back to you |
Core consumer prices (CPI) | +2.6% | Household basket minus food and energy | The figure many budgets and escalator clauses quietly use |
The cost queue, by stage. Percentage changes from the BLS Producer Price Index and Consumer Price Index releases for September 2026 (published October 15 and October 14). Rows ordered by size of change; the right-hand columns are editorial interpretation.
Indirect cost is the expensive part
GFL's unrecovered C$20 million to C$25 million is the detail worth dwelling on. Direct fuel is visible. It has its own line, a public benchmark and, often, a contractual pass-through. Indirect cost is diffuse: a parts supplier's 6% increase, a packaging surcharge, a higher 3PL quote, a tougher insurance renewal. No single item justifies reopening a customer contract, so nobody reopens one. Added together it can be the bigger number, and it turns up a quarter or two after the spike, when the headlines have moved on.
That delay sets a trap. Diesel could ease this winter. A CEO who watches the pump price fall will reasonably decide the worst is over, at the very moment the second-round increases reach purchasing. Pelosi told analysts that diesel rolling over would become a margin tailwind for GFL. That is true for a company whose surcharges fall with the price. For a company whose supplier increases are sticky and whose customer prices are fixed, a falling headline is the point of maximum squeeze.
What this means for the CEO
The contract calendar matters more than the forecast. Nobody running a 400-person business can predict diesel, and trying is a poor use of a leadership team. What you can control is which side of each agreement carries the lag. In late October, a lot of companies are doing the two things that lock in the worst position at once: renewing customer prices for next year and signing off a budget that uses a consumer inflation figure as its cost assumption.
Here is the less obvious part. A fuel surcharge is not the main fix. Customers will accept one on a freight line; they resist one buried inside a component price, and they are right to, because it is hard to verify. The stronger lever is shorter price validity plus a reopener tied to a series both sides can see, such as the PPI index closest to your main inputs, with a threshold so noise doesn't trigger it and symmetry so it works on the way down. Leathers described Werner's dedicated contracts as mostly three to five years with inflation kickers in most cases. Long commitment, explicit adjustment. That structure is available to a mid-sized supplier too, and the best time to propose it is while the PPI release is fresh in everyone's inbox.
Five things to settle before you sign 2027 renewals
Measure your lag. For your 20 largest customer agreements, count the months between a supplier increase and your first chance to pass it on.
Budget costs off producer prices. Use the PPI series nearest your five biggest cost lines, not core CPI.
Ask your top suppliers about January now. A supplier who gives you a number in November has handed you an option.
Swap fixed annual prices for a reopener. A named index, a threshold, a notice period, and it moves both ways.
Track indirect cost as its own line for two quarters. If nobody can see it, everybody will treat it as noise.
Werner and GFL could tell investors, almost to the cent, what the lag cost them this quarter. Most mid-sized companies will learn their own figure from first-quarter gross margin, a few weeks after the renewals are signed.
Sources and notes. Werner Enterprises third-quarter 2026 earnings call, October 28, 2026 (remarks by CEO Derek Leathers and CFO Chris Wikoff on the roughly $0.18 per-share impact versus the second quarter, of which about $0.12 was "largely fuel along with some reserve development"; the one-week surcharge lag; the narrowed wholesale-to-retail diesel spread; reworking customer fuel programs; three-to-five-year dedicated contracts with inflationary kickers), as transcribed by TradingKey. GFL Environmental third-quarter 2026 earnings call, October 29, 2026 (CEO Patrick Dovigi and CFO Luke Pelosi on diesel up more than 60% year on year, roughly C$125 million of incremental cost, C$105 million to C$110 million recovered this year, C$20 million to C$25 million of indirect cost not recovered, and diesel "rolling over" as a margin tailwind), as transcribed by The Motley Fool. Federal Reserve FOMC statement, October 28, 2026 (target range held at 3.75% to 4%; 10-2 vote, with Lisa Cook and Beth Hammack preferring a quarter-point increase). U.S. Bureau of Labor Statistics, Producer Price Indexes for September 2026, released October 15, 2026, and Consumer Price Index for September 2026, released October 14, 2026. Diesel and year-earlier prices from AAA as reported by Forbes (Erik Sherman, October 25, 2026). Figure 1 combines BLS figures with editorial interpretation. Corrections welcome.
