Where are your logistics risk areas? Assess your logistics maturity with 5 simple questions. Take the quiz now.

Oil Prices are Falling! How Does this Affect Your Transportation Management?

Posted - December 16, 2014

Oil Prices are Falling! How Does this Affect Your Transportation Management?

By Alaster Love, Vice President, Oil and Gas, Transplace

Recently, it’s not the sky that’s falling – it’s oil prices. Oil was more than 100 dollars a barrel at the start of the summer. Now it’s around 56 dollars a barrel, and many forecasts say it could go lower still.

So what exactly is going on, and how does it affect your transportation network?

There are a number of reasons for the drop in oil prices; first, our boon finally caught up in terms of mid-stream ability to take product to market. Prior to this catch-up point, a challenge existed in how oil was brought up through pipelines – but now, there’s a glut of materials available in the market. Additionally, OPEC’s decision not to cut production continues to drive the supply, forcing other smaller producers to cut back on their production amounts.

Due to the surplus of supply and subsequent decrease in oil production, there will be a lesser need for trucks to move supply. Smaller trucking companies that lease month-to-month may not survive this change, leaving less capacity in the market and contributing to an already-concerning industry capacity crunch. The larger carriers that are able to ride out the drop in oil prices could take this as an opportunity to raise rates. This makes it all the more vital for companies to take a strategic look at their transportation management systems and find ways to optimize and cut costs.

Here are a few tips for weathering the oil price storm:

1. Embrace tech. Get a holistic view on your transportation spend with a centralized corporate look into costs and procurement. Utilization of a transportation management system (TMS) can be extremely beneficial for finding areas that can be optimized.

2. Centralize real-time visibility of transportation. A TMS system is a great tool for this, as it’s important to determine how many trucks you need, what you spend and what carriers you use.

3. Practice strategic procurement. With volumes fluctuating and some companies forced out of business, there will be real opportunity in the coming months reap significant transportation cost savings. This may require expertise and flexibility in managing a dynamic rate market.

Has the drop in oil prices affected your transportation management strategy?  Do you think oil prices will continue to drop?