The freight trucking industry performs accordingly to the behavior of fuel prices. The moment fuel prices go up, several events are expected to simultaneously occur. When fuel prices go down, there will be the rebound action that will have a different set of results.
Increase in fuel price
The trucking business had gone through several difficult times caused mostly by spiraling fuel prices. A significant increase of fuel prices will result in the following:
- Major reduction in economic activity – Increased fuel prices create a chain reaction in the economy characterized by slowing down in the activities of the various sectors, including manufacturing. The manufacturing sector is one of the major clients of the trucking industry. A slow down in this sector will negatively affect the business of the trucking industry, as there will be less freight to haul.
- Massive changes in supply chains – Higher cost of transportation will force many companies to near-sourcing of supply sources, resulting in deterioration of product quality.
- Falling US dollar – A weakened US dollar will negatively impact import and export, reducing transport of freight that may bankrupt financially challenged trucking companies.
- Increased debts secured by trucking assets – Trucking companies that slowed down may be forced to obtain bank loans guaranteed by their assets. In the event of defaults, the bank will garnish the assets that will leave the trucking company with very little assets to continue operating.
Decrease in fuel prices
If the decrease in fuel prices will be significant, expect the following to occur:
- Lower cost of doing business – A truck will be spending much less in fuel expenses resulting to more trips for the same fuel cost.
- Shippers are shipping more – When there is a slow down in economic activity, shippers are typically shipping less-than-truckload (LTL) freight. They will resort to full truckloads when fuel costs are low.
- Rise of hot markets – Consumer spending in an active economy will give rise to some hot markets that will require more freight to be moved, a benefit for the trucking sector.
- Boost from 30-day terms – A dramatic decline in fuel prices will give profitable boost to the truckers who are contracted with the shippers to be paid on a 30-day term. Fuel surcharges paid, covering the previous month when prices were high, will be received when prices are already low.
The trucking industry can weather, as had been proven in the past, dramatic increase in fuel prices. But a lower pricing of fuel is always welcomed like an adrenalin shot to boost the performance of the industry.