09/22/2015

Price at the Pump & Its Impact

Reading Time: 3 minutes
gas pump

If you’ve been to a gas station in the past few weeks, you may have noticed how much less it costs to fill your tank. In the beginning of September, cost of oil fell to under $50 a barrel1. As fuel prices continue to fluctuate, it impacts shippers and their supply chains:

Consumer Spending Speeding Up

Gas prices aren’t just affected by the cost of oil, but also by the demand of the seasons. Typically gas is more expensive in the summer and then drops in price in the fall and winter when a different type of gas is used and demand decreases2. As summer comes to an end, gas prices are expected to continue to drop. With consumers spending less on gasoline, they’ll see an increase in their disposable income. That paired with a decrease in unemployment rate makes for a busy expected holiday shopping season3. As consumers are able to spend more, shippers can also expect increases in shipping volumes, but must also balance this with the tightening capacity issue the industry has been facing.

Traffic Inflation

Although the decrease in oil prices presents a lot of opportunities, there are a few consequences of the falling oil prices such as congestion. There has been an increase in traffic since fuel costs have decreased now that people can afford to drive further and more frequently4. From 2014 to 2015, the Automotive Aftermarket Suppliers Association indicates that the number of miles individuals are driving has steadily inclined5.

Fuel Cost Graph
Fuel Cost Graph

As fuel costs continue to decrease in the third quarter, it’s estimated that the trend will continue. As car volume increases, carriers and shippers will have to adjust and shift their shipping times and safety measures accordingly.

Environmental Repercussions

Carriers and shippers are also seeing an effect on the environment in the types of fuel they are using. Many who were deliberating using alternative fuels have decided to continue using diesel trucks to reap the most recent cost benefits. As companies strive to be sustainable and environmentally conscious, many are looking in other areas to improve their environmental impact.

Fuel Up With Transportation Savings

Shippers that utilize diesel saw a decrease of about 25% in the first six months of this year in comparison with the previous year6. The trucking industry is estimated to spend $42 billion less on fuel than in 20147. As fuel prices drop, shipping goods on trucks becomes a lot more attractive than other modes of transportation. Lower oil and energy costs may create savings that companies can see in their bottom line.

As summer ends and the holiday season approaches, it will be interesting to see what else will be affected by the oil prices. As consumers ramp up spending, capacity tightens, and oil prices continue to decrease into 2016, shippers must consider the impact these factors will have on their supply chain – operationally, environmentally, and financially.

Sources

  1. http://www.nasdaq.com/markets/crude-oil.aspx
  2. http://money.cnn.com/2015/09/10/news/economy/gas-prices/index.html?sr=twmoney091015gasbelow2dollars1030aVODtop
  3. http://www.aftermarketsuppliers.org/Industry-Analysis/Dashboard
  4. http://www.dailyfinance.com/2015/09/09/low-gasoline-prices-are-supercharging-fuel-sales/
  5. https://www.flickr.com/photos/boegh/5676306489/in/photolist-9DAyag-9DypAp
  6. http://www.joc.com/trucking-logistics/lower-fuel-prices-benefit-shippers-us-freight-volumes-rise_20150616.html
  7. http://www.dcvelocity.com/articles/20150824-truckers-2015-fuel-tab-to-fall-by-42-billion-as-oil-prices-continue-sharp-decline-group-forecasts/