Oil prices went through a dramatic fall last week after Saudi Arabia stunned the world by initiating a price war against Russia’s one-time ally. US oil prices have plummeted as much as 34 percent to a four-year low of $27.34 a barrel as markets are bracing Saudi Arabia to flood the global market in a bid to reclaim market share.
The standoff stunned the oil industry and sparked a 10 percent drop in oil prices Friday. Crude oil had already been trapped in a bear market due to a dramatic drop in demand associated with the coronavirus outbreak. According to economists, the kingdom cut its official April selling prices by $6 to $8 in an attempt to regain market share and pile pressure on Russia. Analysts said the refusal by Russia to cut production amounted to a punch in the faces of US shale oil producers, many of whom need higher oil prices to survive.
So Oil Prices Are Low, But What Happens When They Climb?
The fluctuation of prices in the fuel industry has an ever-changing impact on the logistics sector.
As fuel costs rise, carriers are being pushed to either raise prices or take losses. The cost of fuel in effect impacts not just the shipping business but also the shipper and the shipper’s income flow as well. For example, if rail utilization costs are small and fuel costs are high, a logistics company can send more freight via intermodal carriers than over the road trucks.
That ensures the goods will be sold to customers at higher costs to account for the higher costs of shipping and diesel. Logistics companies that provide the biggest cost savings will divert resources from reducing the high fuel costs to working to improve service quality and other facets of their activities.
Another advantage that threatens the fuel costs impact is rapid change and price volatility. In general, fuel surcharges are created by logistics companies based on the fuel prices of the previous week. When the fuel costs increase quickly, there is a difference between the fuel price and the fuel surcharge limit.
Earnings growth in the trucking industry due to low oil costs would likely be much less rapid than in the airline industry. Business fortunes in this sector, such as Ryder and Old Dominion Freight Line (ODFL), are more likely to benefit from further changes in the general economy than lower overall fuel costs.
Oil Prices Are Low. What Can I Do Today?
If the low fuel prices today have a big positive effect on the balance sheet of your fleet, it could be a good time to prepare for the future. Take that sudden profit and make it work well past the unavoidable downstream price rise. Here are a couple of ideas: Make changes and fixes. The current benefit of a fleet operator will prevent loss, because the price per barrel of oil has fallen considerably. Seek to spend the money on your machinery and development to keep it in good condition and you don’t have any debt when things go down, you have good equipment so you can get ready for the next boom.
Invest in the retention of workers-Consider sharing the wealth with the staff. Employees are one of the best investments which a fleet can make in a tight labor market. Surveys show, time and time again, that employees value their managers ‘ respect and affection even more than income. But one way to show them they are important contributors to the business is a bit of extra cash when times are good.
Seek ways to keep fuel costs down–they still count as a big expense for every fleet, no matter how low gas prices are right now. Any few cents of savings per gallon will make a real difference over the long haul.
In the short run, if you’re looking to take advantage of low fuel costs and put some resources into your fleet operations, the Sunbelt Finance Fuel Card with a detailed custom factoring plan will give you the edge you need to be prepared for the stabilization of the economy.