Many costs are affecting the transport industry today. Some appear as direct costs while others are usually indirect, but their effect is significant altogether. These costs have varied effects on the total transport cost for a given product—they alter the overall cost of transport in different margins. However, price fluctuation in the fuel industry is the primary cause of changes in transport costs globally.
Like the other types of costs, a change in fuel prices may also have direct and indirect effects on the cost of transport. Initially, production lines that rely on fuel for energy must adjust their product prices depending on fuel cost ( Raimbault & Bergeaud, 2017) . This move is meant to raise the prices for commodities with a rise in the cost of fuel. Alternatively, the producers may raise the cost of transporting the goods to the consumer to avoid reduced profits. For example, after the disruption of the main fuel supply network to the Southeastern part of the USA, fuel prices have hiked by a cent leading to transport industries raising their charges on transporting goods from production zones to the market.
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Fuel price reductions result in increased demand for shipping services—sales and, as a result, profitability increase, resulting in economic growth. Companies in the logistics industry channel their resources from reducing high fuel costs to improving service delivery. A rise in the cost of fuel triggers a rise in the total transport cost per unit distance. The high cost of fuel forces the transportation firms to increase their charges for transporting a product from one point to the other to avoid losses.
Essentially, a higher cost of fuel translates to a higher cost of transport for any rational investor in the transport sector. Moreover, it also results in shifting the standard cut point distance for a given mean of transport. In North America, for example, a typical cutting point for trucks against trains was around 700 miles, but as fuel prices have been rising, this range has shrunk to around 500 miles. A modal shift is also common during periods of high fuel prices. For example, at an average oil price of around $72 per barrel, the transportation rates in Western Europe are driven by staff salaries, with fuel consumption accounting for around 20-30% of the expenses ( Santos, 2017) . The average fuel costs for waterborne transportation are marginally lower. However, relative to road transport, shipping is slower. Consequently, the ships' top speeds have been raised to compete better with road and rail transportation.
References
Raimbault, J., & Bergeaud, A. (2017, September). The cost of transportation: Spatial analysis of us fuel prices. In EWGT 2017 (pp. 0-0).
Santos, G. (2017). Road fuel taxes in Europe: Do they internalize road transport externalities? Transport Policy , 53 , 120-134.
