Price fluctuation in the market for fuel is continuously evolving. With that, its effects on the logistics industry are also changing. Rapid increases in fuel prices can have a hard effect on oil freight companies, while sudden falls could boost the company’s profits and surge competition within the market to provide the lowest prices to customers.
Oil Price rise
As fuel prices rise, the cost of the business also increases. Carriers must raise their prices, or they will have to take the losses. Higher fuel prices affect not only the logistics company but also the shipper and the profit source of the shipper. If it costs more for the freight carrier to transport the freight, then the shipper is going to be charged more, creating a domino effect. Continuing that effect, if the shipper is charged more for the transportation of the freight, then the receivers will also be charged more to make up for the added costs.
Oil prices rising also lead to freight companies changing the means of their transportation. For example, if the cost of rail usage is low while there’s a fuel surge charge, a logistics company might ship more via railroads than road trucks. This also means that products will be sold to consumers at a higher price to cover the higher costs of transportation and fuel costs.
Higher fuel costs mean higher prices passed through the whole process. It is one of the disadvantages of high oil prices.
Oils and Gas Logistics
Another factor that affects logistics is the rapid change and price volatility. Logistic companies base their fuel surcharges on the fuel prices of the previous week. When the fuel prices rise rapidly, it creates a lag in the price of fuel and the surcharge rate. This lag has a huge effect on the truck company’s earnings. As it rapidly decreases, the opposite happens, and a higher profit is made.
About Prime Group
There are four divisions of Prime Group, one of them being an international logistics company. Prime Logistics serves to streamline, optimize, and expedite freight to and from the U.S. for a wide range of major industries. With offices in Miami, New York, Los Angeles,and Amsterdam, Prime Logistics capitalizes on its long-time relationships with the major air carriers and ocean lines to offer competitive rates in securing ample space to destinations all around the world.