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Savings from fuel can be reinvested

Low oil prices have effects on all industries.
/ Industry News & Trends /

By: Phil Sneed

Toward the end of March, investors received news that has become all too familiar since oil prices began sliding due to global economic worries.

According to CNBC, future oil prices slid 3 percent and closed below $40 during the last full week of March, its biggest daily loss since Feb. 11, 2016. As has been the story for the last few months, an oversupply of oil has driven down the costs for crude oil.

The slide in late March occurred after the U.S. Energy Information Agency stated U.S. crude stockpiles increased by about 9.4 million barrels to a record total of 532.5 million barrels. This number represented a build up roughly three times greater than what analysts were expecting, which was a reason for the decline in prices. Additionally, the current strength of the U.S. dollar was another factor to stopping the rally, Tyche Capital Advisors analyst John Macaluso told MarketWatch. A strong dollar makes it more difficult for buyers using other currencies to purchase commodities such as oil.

Investors and analysts were caught off guard after there were discussions within OPEC to stabilize and freeze production at January's high levels. These rumors, in addition to declining U.S. production, had previously led to a two-month rally by the market. 

All signs point to low oil prices becoming the norm. This stands in stark comparison to eight years ago, when the price of a barrel of oil was $140. Since then, low prices have affected every corner of the American economy, from regular consumers to the transportation industry.

"All signs point to low oil prices becoming the norm."

Fuel and transportation
The price of oil is one area that is closely watched by various sectors, including the transportation industry. It is, after all, what powers the semi-trailers often seen on the country's interstates. Because of this partnership, high fuel prices translate into higher costs for transportation companies, and when prices are low, companies are able to save more.

Due to current conditions, trucking companies currently face numerous strategic questions regarding business decisions. Because oil prices have declined for more than a year, companies should be well-aware of the potential effects of this past week's price drop. Even so, falling prices must be carefully examined because all modes of transportation are affected in some way, but not all equally.

In the short term, trucking companies stand to benefit from higher margins while being able to pass some of the savings on to customers, according to Strategy Business. For example, assuming the price of oil was around $60 to $80, the line haul cost per-container mile would be around $1.82 for trucks, compared to a much cheaper $0.37 for rail.

With the price of oil continuing to drop, that gap will gradually close.

Proceeding forward
In the immediate future, the trucking industry should expect to experience an increase in business as trucking becomes more competitive with rail. Additionally, operators are able to widen their margins.

"Fleets should be courting customers who may have brushed off trucking."

The cost savings customers might receive also shouldn't be ignored. If fleets haven't done so already, they should be courting customers who may have brushed off trucking. With prices where they are now, companies are able to highlight the trade-off with regard to speed and timing.

TMS and streamlining
With the money saved from the price of fuel, trucking companies can potentially use those savings to reinvest in equipment, drivers and other important assets, such as a transportation management system.

Depending on the type of TMS a company elects to use, the costs can vary from a monthly subscription to a one-time fee. That choice will be made by preference on how the company prefers to utilize the system.

But savings don't have to just stop at fuel. A TMS will help companies streamline their operations by utilizing fuel-efficient routes and adjust networks and operations based on demand.