Although the COVID-19 pandemic started as a health emergency. Now, as predicted by economists, it reached the economic sector pretty fast. Oil prices were under pressure even earlier. Now, these oil prices have hit depths never seen before in the history of the US oil market. The prices could have far-reaching consequences in logistics and transportation.
So far, the US has been the worst hit in the world, with 1.9 million confirmed infections, and over 109,000K fatalities, as of this writing. But enforcing lockdowns of varying degrees in multiple states has impacted the overall demand for goods, services, and, yes, even gas.
However, the trucking industry was one of the major sectors that remained open during the lockdown, supplying essential goods, medical equipment, and other materials to the quarantined citizens. As things slowly show initial signs of returning to normalcy, the truckers should be aware of the current oil price trends and their potential impact on the industry.
Let’s shed some light on a few key things that you should know about the declining oil prices and its implications.
A significant lack of storage.
In the last week of April 2020, the US crude oil marker West Texas Intermediate hit a record low of -$37 per barrel for the first time in history. That was a mere four weeks ago! The signs of a lack of storage were clear.
In other words, there’s no place to put all the oil that is being pumped. Hence, the stock-holders are willing to pay more to the purchasers at the moment to take the commodity away, as they have nowhere to hold the oil in storage.
Coming to the impact of such low prices on the trucking industry, there will probably be a momentary reduction in fuel expenses, which can then be used to streamline the operations around customer demands.
The industry will save more as a direct consequence. But there’s always a twist with oil economics. Steep falls in oil prices have knock-on effects on consumer demand. If that happens, there may also be a lesser need for vehicles as less freight will be shipped.
However, one change that is coming is a modified lockdown. Restrictions are being relaxed in many states now and that’s likely to ease the economic demand a bit.
Proper utilization of the cost savings.
The savings in fuel expenses can be utilized by trucking companies to focus on investments to improve operations based on the needs of the moment. They can invest in improved sanitization measures for their truckers to feel safer on the roads, or they can invest in some technology that will help them operate more efficiently. Either way, it will be a win-win situation for trucking companies.
Reduced demand for oil field trucks.
Of course, the lesser the investment in energy-related businesses, the lesser will be the number of trucks needed to carry that equipment around. About 3% of the trucking fleet in the US is used in areas associated with extracting and producing fossil fuel, excluding the tankers that carry the commodity to the gas stations and distribution centers.
Hence, there will be a drop in the demand for oil field trucks. The truck operators in Texas, New Mexico, North Dakota, and the Gulf States could have to face the crisis first. For such truckers, there are no easy options.
A trucker can either move on to other operations in the logistics and transportation sector or wait for the situation to get better. Both approaches carry risk and neither is particularly easy to do.
Lack of jobs in the transportation sector.
A pandemic-impacted demand scenario and declining oil prices will possibly be a double shock that the economy may take a while to recover from. However, the trucking companies may escape the worst of the crisis, as truckers will always be needed to deliver essential commodities across the country.
Improve operations to provide convenience.
As mentioned earlier, in the short-term, trucking companies will save a lot on fuel costs. This cash could be an unexpected bonus and may hold the key to surviving an uncertain time. They can try to expand their networks and improve the operational efficiencies to try to wait out the storm.
As the oil becomes cheaper due to lower demand, trucking companies can try to use this situation to their advantage. With lesser fuel costs, trucking company’s should utilize the cost savings in enhancing their operations and improving safety for the truckers on the road.
When the situation gets better later in the year, (I hope it will), these simple ideas can translate into more revenue for the trucking companies. The oil shock could be the blessing in disguise truckers were looking for.
Top Image Credit: 500photos; Pexels