The American Trucking Association estimates that the trucking industry saves around $350 million for every one-cent decrease in fuel cost. For the past year, the price of crude oil has been at one of the lowest levels since 2008. Currently, the cost of Brent Crude hovers in the area of $52 per barrel.
(Pixabay / MichaelGaida)
The Organization of Petroleum Exporting Countries (OPEC) recently decided to cut down oil production in an effort to boost price. Crude oil was at a historic low at $25 per barrel at the beginning of 2016. The decision to cut down production was a big turnaround from the previous position held by Saudi Arabia, the de-facto head of OPEC. Previously, Saudi Arabia had decided to continue producing oil in the hope of trammeling the U.S., which has become a major producer of oil. With OPEC’s decision to cut down production, oil rates have increased by as much as 70 percent since the January 2016 level.
Another factor that contributed to the rise of the price of oil was the weaker U.S. dollar. The market price of crude oil is valued in U.S. dollars, therefore its price is also incumbent upon the performance of that currency. Recently, the dollar has been outperforming other world currencies. The improving value of the dollar has been able to absorb the trend of increasing oil prices caused by the OPEC action.
Impact on Trucking
The price of oil has a significant influence on trucking companies, both short term and long term. The U.S. Department of Transportation estimates that at an oil price of $60 to $80 per barrel, the cost of hauling one container per mile, will be about $1.82 for trucks and 37 cents for rail. If the price of oil goes lower than that, the relative price gap between the cost for truck and rail will be narrower.
The short term benefit of low-cost oil will be higher profit margins for trucking operators, which they could pass on to their customers through lower shipping charges. The fuel surcharge levied on customers by the National Delivery Systems is periodically adjusted based on the national average fuel index. The lower cost also allows the trucking industry to be more competitive with rail. It should be noted that the trucking industry lost a lot of customers to rail when oil prices, and subsequently trucking costs, went up.
Lower fuel costs will enable trucking companies to improve their shipping networks by eliminating older and less fuel-efficient trucks. That can in turn lead to better delivery times and, ultimately, happier customers.