This paper aims to discuss ways in which the cost and fluctuation of oil prices influence the transportation of goods. Fluctuations in the fuel price have a significant impact on the transport industry where companies that have specialized in the transportation of goods try to adjust their rates to be at per with the current prices of fuel. An increase in the fuel price will have an effect on the cost of the transportation, as clients are forced to pay more for the same transport services. Transportation companies are compelled to charge more for similar services for them to remain in business while still making some profit. The price of crude oil can be evaluated from demand and supply parameters in the global market, most particularly in the major refining centers that include Northwest Europe, Singapore and the United States Gulf Coast (Bildirici and Kayıkçı, 2013). Crude oil prices also play a significant role in determination of the prices of petroleum products, making them an essential determinant of price changes.
The large increase in crude oil prices affects oil-extensive sectors to different extents, causing much concern for oil-importing countries. In September 2008, Brent crude oil was going at around 100 USD per barrel, and approximately two months in June/July, it had reached a peak of about 147 USD per barrel. The drastic rise in oil prices and its impact on the economy as well as transport industry is an issue of major concern worldwide since low prices of oil can jeopardize various existing oil projects. This jeopardy can then lead to the delay or cancellation of others, a situation that is likely to result in a medium-term supply shortage. Besides, tight credit conditions are expected to threaten new energy projects worldwide. According to Baumeister and Kilian (2016), the future recovery of the world economy is most likely to put pressure on the limited capacity of oil reserves and eventually leading to price spikes.
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Price rises of crude oil have a direct impact on the level of prices of the marine bunker. Seagoing vessels use different grades or type marine fuel. The Intermediate Fuel Oil (IFO) 380 CST fuel is vital in main engines when the vessels are at sea, while the Marine Diesel Oil (MDO) is for auxiliaries, crucial when at the port (Notteboom and Vernimmen, 2009). The analysis of the structure of the transport costs can be done in consideration of other factors, such as insurance, labor costs, maintenance, ownership taxes among others. According to Garber and Hoel (2014), the road freight transport cost of a typical truck range between 0.9 Euros per kilometer in Romania and 1.54 Euros for the same distance in Italy. Garber and Hoel further state that fuel and labor costs are the main the components that drive the transportation industry and they vary from one country to another as indicated in figure 1 below.
As the year 2008 ended, the world experienced financial crisis and stagnation in both Europe and the United States, which saw the oil price falling significantly below 50 USD per barrel (Notteboom and Vernimmen, 2009). This reduction resulted from the financial crisis and economic stagnation that pushed a large number of consumers to reduce the use of energy. Besides, different modes of transport benefited from the reduced oil prices in early 2015, as the industry could experience direct savings from the lower fuel prices as well as an uptick in consumer spending in the transport sector. Airlines are some of the most prominent beneficiaries of the reduced cost of fuel since approximately a third of air cost is associated with fuel. The freight rail industry also gains from reduced oil prices, in which benefits of lower costs are shared between customers, who see decreased fuel surcharges, and the operators, who see higher margins. In most cases, customers view rail transport more appealing than trucking for long-haul routes since rail is less expensive, though trucking is faster than rail. Lower fuel prices help trucking companies recapture customers they lost.
Reference
Baumeister, C., & Kilian, L. (2016). Understanding the Decline in the Price of Oil since June 2014. Journal of the Association of Environmental and Resource Economists , 3 (1), 131-158.
Bildirici, M. E., & Kayıkçı, F. (2013). Effects of oil production on economic growth in Eurasian countries: Panel ARDL approach. Energy , 49 , 156-161.
Garber, N. J., & Hoel, L. A. (2014). Traffic and highway engineering . Cengage Learning.
Notteboom, T. E., & Vernimmen, B. (2009). The effect of high fuel costs on liner service configuration in container shipping. Journal of Transport Geography , 17 (5), 325-337.
