The price of oil has dropped precipitously over the past two years. I’m sure you’ve heard. If nothing else, you’ve passed a gas station recently and probably did a double-take at those three numbers staring back at you.
The reasons behind this drop are expectedly complicated (here’s a pretty good overview of what’s happening), but old fashioned supply and demand goes a long way towards explaining the situation.
Increased fracking in places like Texas and Oklahoma have contributed to the drop. Most believe fracking has had some pretty earth-moving consequences in it’s own right.
It’s anyone’s guess when prices will rise again, but as they currently sit, low oil prices affect the freight industry in a number of ways. We’ve talked briefly about the factors in shipping rates, so let’s break down three common types of shipments that you’ll find in the domestic freight industry, and how these oil prices affect the consumer, carrier, or broker.
Trucking
Low oil prices often result in lower gas prices, and these lower gas prices can help lower your freight quotes. By spending less on gas, a carrier can offer more competitive freight rates. They can also afford to ship more volume.
Added volume increases the demand for more drivers, so hopefully the driver shortage can begin to work itself out. Overall, lower oil prices are a good thing for the trucking industry – both LTL and full truckload services.
Intermodal
Conversely, low oil prices are not great for intermodal shipping. The main draw of intermodal shipments is that they are typically cheaper than your standard truckload freight shipment.
The drawback is the delayed transit times. With low gas prices and lower freight quotes, intermodal loses its bang for its buck. Standard truck shipments can offer competitive prices with faster transit times than intermodal.
Air Freight
As a huge part of air freight is tied up in jet fuel prices, you’d think you could see tremendous savings when it comes to getting air freight quotes. Not so fast. While jet fuel prices have dropped, and that has resulted in cheaper commercial air fairs, overall air freight quotes might not move much.
This is largely because good years in the air industry are few and far between. To stay afloat in an industry that teeters on insolvency, the air carriers are likely to boost their profits while they can, in an effort to plan for the inevitable hard days to come.