Fuel Price Impact on Transportation Paper
Research online the changes in transportation brought about by increases in fuel prices. Write a three page paper in APA format (Links to an external site.) using at least five (5) references in addition to your textbook that does the following:
Describe how fuel and labor have impacted motor carrier cost structures and how they have altered motor carrier operations.
How does fuel cost and efficiency affect both air carrier costs and pricing?
How does fuel cost and efficiency affect Railroad costs and pricing?
What would be the impact of higher fuel charges on the water carrier industry? Provide rationale for raising their user charges.
· Which mode of transportation would suffer most from higher fuel prices? Benefit the most?
The three pages are content pages. The title and reference pages are additional pages. You must have a minimum of three pages of content.
Be aware that an anti-plagiarism tool is used in this assignment.
ANSWER
Motor carrier costs are vital and must be taken into account for any company that manufactures products or provides services. Fuel and labour logistics and their fluctuations in the market in the United States constantly evolves and with it, a change in the industries can be observed. A direct repercussion, for instance, of a rapid rise in the prices of fuel can have a negative and catastrophic effect on a freight management company that could even push it out of business while a sudden fall in price could also push the company out of business by boosting short-term profits and implementing more competition from similar companies luring clients with the lowest price. Motor carrier cost structures, therefore, have to put these factors into consideration. Nationally, Winebrake et al (2015), asserts that “fuel price elasticities in the United States’ trucking sector have shifted from an elastic environment in the 1970s to a relatively inelastic environment today” from conducting market research on the issue. The findings of the research point to the fact that price inelasticity of fuel prices has played a major role in positive policymaking with regards to limitations implemented on energy conservations and the reduction of greenhouse emissions (Winebrake et al 2015).
As in motor carrier operations, fuel prices also have an impact on air carrier operations. One of the largest operating cost for airlines is fuel expenses. Their impact is so enormous that fluctuations in price can impact an airline’s bottom line and therefore to protect themselves airlines adopt a hedging system of buying or selling expected fuel prices through a range of derivatives that helps them control both pricing and cost (Brueckner et al., 2017). The way this works is that an airline buys current oil contracts that enable a lock on fuel price today which can serve to a huge benefit of the prices rises tomorrow or the day after. This limits the impact of the fluctuations to the airline but also means that on the occasion that a wrong derivative is resolved and applied, an airline may end up paying so much more for its air carriers and potentially losing business to the competition. An example of this scenario is a buyer discovering the price of fuel will rise incredibly in three months. During that period of very high fuel prices, the buyer expects to require x amount of fuel. To prevent this fluctuation on his part, the buyer buys the amount of fuel he or she requires now plus x amount of fuel he or she requires in the future that oil prices are high. With such a system the air carrier’s activities will move on unperturbed during the entire fiscal year and cost will be almost as accurate as predicted at the beginning during the annual budgeting (Brueckner et al., 2017).
Many modern trains are no longer fossil fuel power but instead, depend on electric power. In the United States, a few trains have been electrified but some are still diesel-powered. The reason for this transformation is that a diesel train engine is only 30% effective in comparison to an electric one (). By the year 2018, fuel prices in the country were monumentally low but experts still predict a potential long trend of increased prices. The sudden rush by rail transport to electricity is also enforced by the fact that electric trains run on half the cost of diesel-powered engines. However, generally, railway fuel costs are negligible in comparison to air transport even when trains run on diesel. Railroad industries benefits are incredibly large when fuel costs are low which translates to lower transport charges on both passengers and goods. When prices of fuel as high, operations of railways receive only a small effect that could be termed as negligible (Krishnan et al., 2015).
Ocean shopping like air carriers largely relies on fuel pricing and costs. Companies in the industry stand to gain huge profits in the event of a fuel price drop which would lower the operation costs and enable higher margins in the short term. In the long term, a company in the business could also increase the size of its fleet or make other modifications that contribute to the growth of the company. Shipping companies using water transport are also more adaptive to fluctuations in prices in comparison to air transport because the ships themselves can evolve momentarily to counter and control the operating costs. For example, it is a well-known fact that older models of ships and also faster ships consume more fuel than newer and slower vessels (Maloni 2013). Higher prices in fuel could cause a ripple into the business but experts assert that it would be enough to put a company out of business as in air carriers.
In conclusion, of the four modes of transportation, air carriers stand to suffer the most from high fuel prices and hence the implementation of protective measures while railway transport would gain the most in the event of very low fuel prices (Strategy & Business). Road transport would be second after air transport and water transport third. The two middle choices however are in a constant race with each other depending on set conditions. For instance, if the amount of goods or passengers to move was little, water transport consumes low amounts of fuel. Similarly, if the model of the ship is a newer model that is fast, it would consume more fuel, enough to contest a road truck. However, on the extreme ends are air carriers and railway transport.
References
Brueckner, J. K., & Abreu, C. (2017). Airline fuel usage and carbon emissions: Determining factors. Journal of Air Transport Management, 62, 10-17.
Krishnan, V., Kastrouni, E., Pyrialakou, V. D., Gkritza, K., & McCalley, J. D. (2015). An optimization model of energy and transportation systems: Assessing the high-speed rail impacts in the United States. Transportation Research Part C: Emerging Technologies, 54, 131-156.
Maloni, M., Paul, J. A., & Gligor, D. M. (2013). Slow steaming impacts ocean carriers and shippers. Maritime Economics & Logistics, 15(2), 151-171.
Strategy & Business. The Impact of Reduced Oil Prices on the Transportation Sector. Retrieved on 25th April 2021 from https://www.strategy-business.com/article/00312?gko=f2a4e
Winebrake, J. J., Green, E. H., Comer, B., Li, C., Froman, S., & Shelby, M. (2015). Fuel price elasticities in the US combination trucking sector. Transportation Research Part D: Transport and Environment, 38, 166-177.
