It’s common knowledge that oil prices have a lot to do with the cost of other products and services going up or down, like gas prices or airline tickets. But had you considered how large of an effect they have on the shipping industry? The shipping industry has to keep a close eye on oil prices, since they can greatly affect how expensive it is to ship things from one end of the world to the other. This, in turn, affects their bottom line, as well as the price for the customers who are ordering goods to be shipped. Below, Porta-Stor will take a closer look at how changing oil prices affect different aspects of the shipping industry.
Railway and the Shipping Industry
You’ve probably seen trains go by pulling a long line of large shipping containers, each transporting goods from one location to another. Getting these containers to their destination is highly reliant on fuel and the oil prices at the time. If the cost of oil is high, then the railways will have to adjust the price point of getting that shipping container and its goods to the next location.
One difference with rail as the mode of transportation for these shipping containers is that they can split the cost of fuel prices between the customer and the operator. This gives the operator a higher profit margin while giving the customer a bit of relief for a slightly lower fuel cost on their expenses.
The trouble with the railway is that it's restricted to areas that have tracks running through and stations set up, as well as the limited number of trains that can run back and for on a particular line.
Ocean Travel and the Shipping Industry
The ocean is one large roadway of vessels hauling shipping containers of goods from one location to another. When fuel prices are lower, it’s a great time for oceanic travels and shipping containers. Their costs stay low and earnings go up. When oil prices soar, this makes profits smaller and the demand for such vessels and the shipping containers they carry tends to lessen.
Fuel costs can represent up to 50-60% of the total ship operating costs, depending on the size of the vessel. So it’s safe to say that when oil prices are on the rise, this is not a good sign for the shipping industry or the ships that are used to transport them. There’s a lot at stake when fuel costs rise. For example, if one cargo ship ends up paying less in fuel than the others, this means those other cargo ships have to pick up the cost, which isn’t a good business model when the oil prices rise.
Trucking and the Shipping Industry
The use of road trucking to transport shipping containers is a less cost effective method than railways, no matter how the oil prices are faring. Using big rigs is always a gamble when the oil prices are rising, as this can end up costing both the trucking company and the container company more money. Despite this, there has been an uptick in using trucks to haul shipping containers versus rail, due to the railways becoming more congested. However, when the price of diesel fuel goes way up, we will likely see the shift go back to railway transportation, as the cost of fuel there is less of a hit to the shipping companies.
Overall, rising oil prices can have a large impact on shipping companies and how they choose to get their freight from point A to point B. There’s never just one set way to get from place to place, and these shipping companies have to watch the oil prices carefully to determine what’s best for their business’s bottom line.
If you want more information on the shipping industry, check out Porta-Stor’s other blogs, such as this one that goes over how cryptocurrency might affect shipping in the future.