Dropping Oil Prices

Trucking capacity has been a hot topic for as long as I have been in the transportation industry. There are many items that can affect capacity and one of the biggest is energy prices. Recent drops in oil prices has caused fuel prices to drop to levels not seen in several years. This drop in fuel has created savings for most customers in regards to the fuel surcharges they pay. This drop has also created opportunities for trucking companies to leverage their capacity into greater earnings. Most trucking companies own less than 17 trucks. We have witnessed a trend that these smaller companies are not lowering their rates in proportion to the decrease in fuel costs. Carriers are using their capacity to keep rates high even when their expenses are lower. They are doing this to increase pay for more drivers, upgrade equipment, create a financial cushion and to generate earnings for investors. However, this has not led to an increase in overall capacity.

Economics teaches us that the most successful economies have stable prices. If the price of oil can stay low for most of next year, an opportunity will exist that will help expand capacity. The majority of trucking companies are small businesses and the high cost of fuel is a barrier that keeps entrepreneurs from opening new trucking companies. When fuel prices are low this barrier can result, over time, with an increase in capacity. While it is great that carriers are paying less at the pump it does not solve the driver shortage. Paying less for energy costs should create more disposable income which should lead to higher spending. This will create demand for more products, which in turn will create the need for additional capacity and jobs opportunities.  

We are glad that the price of oil is dropping and we hope it can stay that way. This will help get new carriers into the market which should eventually lead to greater capacity.