While lower gas prices may be extremely positive for a majority of the population, it can raise concern for supply chain and logistics professionals. But why have gas prices been at their lowest prices since 2005, and how will this decrease in fuel costs affect logistics professionals? Let’s take a look.
The Cause of Low Gas Prices
The United States and European nations have lifted economic sanctions on Iran—the third largest exporter of petroleum in the world. Because of this, Iran can now sell its oil to more markets. At the same time, the Organization of the Petroleum Exporting Countries (OPEC) nations have continued their production of oil, in part to drive down demand for hydraulic fracturing (commonly known as “fracking”), the growth of which has established the United States as the world’s largest oil producer.
What all of this boils down to is that there is more oil on the market, and more oil on the market results in lower oil prices. One way of curtailing the amount of oil on the market would be to minimize fracking or to stop it altogether, but this creates issues of its own—namely when it comes to boomtowns such as those that sprung up in North Dakota. These small, oil-rich towns became flooded with out-of-state workers in the mid-2000s who were seeking high-paying drill jobs. Along with that rise in population came a massive demand for construction materials and other goods, and that was a boon to the freight industry. Now that the price of oil is much lower than the 2014 highs, a great deal of fracking has been put on hold, which means many jobs have been lost—and shipping to the region has begun to drop. Those who were not rooted in the boomtowns have left, leaving the opposite of “booming business,” as CNBC documented.
With no clear solution to the issue at hand, Polaris has made it a point to be proactive during this time. As explained in our Global Forces. Local Impact. industry report, our team is dedicated to learning about market conditions and the effects the availability of oil has on not only our business, but our customers’.
What Low Gas Prices Mean for the Logistics Industry
While you may have noticed your weekly fill-up has gone up a bit in price in the last month or so, fuel costs are still significantly low overall. Since the cost of fuel is directly related to the bottom line of every carrier on the road, the team at Polaris Logistics Group continues to study the climate surrounding fuel prices—and that enables us to better serve our customers.
In addition to placing an emphasis on market conditions, the ongoing relationship our team has with hundreds of carriers enables us to facilitate the best possible price for our customers.
When fuel prices are low…
A majority of the pricing Polaris arranges with carriers is transactional, or a flat-rate. This pricing structure allows us to quickly adapt shipment quotes to reflect the past loads we’ve arranged with a specific carrier. For example, if a carrier requests the same price today as they did at a time when fuel prices were much higher, our team is able to negotiate a lower price based on this relationship
When fuel prices are high…
When fuel prices increase, the truck market tends to tighten up, which may result in a significant swing in pricing. It is our job to prevent customers from having to deal with this price increase—and the negotiation process that comes with it. Polaris serves as a “buffer” between our customer and the carrier, facilitating all communications and oftentimes filtering out those carriers who are difficult to deal with. We handle the back-and-forth communication with carriers so you don’t have to, working to ensure shipment rates—and the level of service provided—remain consistent.
Creating an Effective Logistics Strategy
Maintaining an effective and profitable logistics strategy requires 3PLs to be highly proactive. At Polaris Logistics Group, we believe it is our duty to understand the factors that affect supply chain and logistics—including fuel prices—and to offer this insight to our customers. To learn how our team can offer our industry expertise to your company, contact us at 855.879.7186 or fill out the submission form on our website.