GTS Blog

Why Low Oil Prices Don’t Mean Cheaper Shipping Costs

Posted by Ascent Global Logistics on Mar 29, 2017 6:01:26 PM

If your company sends or receives freight, you may be wondering when shipping costs are going to drop. Well, it’s most likely that you won’t see a significant change, because regular gasoline and diesel fuel have different factors that lower costs.

oil_barrels_croppedGasoline has fallen more than a dollar on average, while diesel has only dropped an average of 40 cents. So the rate decline of gasoline is 3x that of diesel.

Additionally, diesel prices typically spike in the winter as demand for diesel as a heating fuel increases.

Diesel prices aren’t rapidly lowering at gas stations because there aren’t as many diesel drivers in the U.S., so gas stations can’t compete with the same supply & demand dynamics as they can with gasoline. But as the U.S. economy slowly recovers, there is a slight increase in demand for diesel & trucking fuel as consumers purchase more goods.

Another factor is the slight increase of consumers purchasing diesel vehicles, following the high fuel prices of the last few years. Diesel is reported to be about 30% more efficient than gasoline engines.

Several issues besides fuel prices add up to determine overall logistics pricing.

For example, operational costs – many companies have seen higher healthcare rates – and regulations, such as the recent changes in federal air pollution rules. This requires carriers to have cleaner burning diesel, which is more expensive to produce. And even though diesel fuel prices have dropped, carriers are still increasing rates because of continued driver shortages and capacity crunches.

Diesel prices may continue to steadily decrease, but the supply chain isn’t going to see a substantial price break. Just like when the price of food drops, the only people that really see the difference are consumers. The same is happening with fuel.

Do you think diesel prices will continue to fall, and if so how will this impact the transportation industry? Leave a comment below.

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Topics: Supply Chain, Logistics