Escalating Fuel Prices and its Effects on Transportation

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Diesel Fuel Price
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OPEC

• Organization of Petroleum Exporting Countries
  (OPEC) members include  Algeria, Indonesia, Iran,
  Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi
  Arabia, the United Arab Emirates, and Venezuela.
  

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Trucking

• 300,000 registered trucking companies in USA
• Industry burns 700 million gallons of diesel per
  week
  
• Every 10 cent increase in diesel1,000 small
  trucking companies go out of business
  

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How the Trucking Industry is dealing with higher
prices

• Fuel Surcharge A percentage added on the total
  price of the shipment to compensate for the
  higher gas price
  
• Fuel Hedging Some companies have contracts with
  oil companies to buy diesel at contracted prices
  
• Lower maximum speed Every 5mph you slow down you
  save .5 mpg
  
• Every 10 mph you slow down you save 10 on tire
  life

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Fuel Surcharge
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Airline Industry

• Consumes 19.5 billion gallons of jet fuel
  annually
  
• As of January 17, 2006 jet fuel 78.04 a barrel
• Every penny increase in the price of a gallon of
  jet fuel drives an additional 195 million in
  annual fuel costs for U.S airlines
  
• Airlines have no alternative to jet fuel

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What are the effects of the rising fuel prices on
airlines?

• Layoffs are the primary method of cutting costs
• Cancelled flights/less frequent flights
• Fewer amenities on flights
• Packed airplanes
• Delta Air Lines and Northwest Airlines filed for
  Chapter 11bankruptcy

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Why not just increase ticket price?

• There is strict competition within the airline
  industry
  
• The airline industry also competes with other
  modes of transportation
  
• The demand for air transportation is highly
  elastic

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How are airlines coping with the increase in jet
fuel?

• Tankering extra fuel on certain flights to avoid
  refueling at more expensive locations
  
• Cruising longer at higher altitudes
• Reducing and measuring more accurately onboard
  weight and cargo
  
• Flight planning for minimum fuel-burn routes

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• Modernizing their fleets with more fuel-efficient
  airplanes
  
• Redesigning hubs and schedules to alleviate
  congestion
  
• Pooling resources to purchase fuel in bulk
  through alliances with other carriers
  
• Investing in winglets to reduce aircraft drag and
  thereby increase fuel conservation
  
• Hedging?

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Economy

• The rise in crude oil prices set records each day
  it effects the economy in large and small ways.
  
• So far, higher oil and gas prices have not
  stopped the US economy and the economy continues
  to grow.
  
• Firms across the country are very concerned with
  rising gas prices.
  

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Economy continued

• Energy related expenses are the most significant
  cost of doing business in America
  
• When prices rise, employers are hurt and
  Americans lose their jobs
  
• US Dept. of Commerce estimates America is losing
  nearly 2 million jobs annually due to oil prices

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Economy continued

• Every time there is a 10 increase in oil
  prices
  
• 150,000 Americans lose their jobs
• US loses somewhere between 80 billion and 160
  billion in economic growth
  
• American households are spending a total of 550
  billion on energy this year, up 150 billion from
  last year. An increase of 37.5.

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Economy continued

• Our increased demand and dependence on foreign
  oil sources will keep us from meeting our full
  economic potential.
  
• Federal Reserve Chairman Ben Bernanke and other
  leading economists say that our low energy
  supplies are the biggest threat to our economy.

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Economy continued

• Because of the rising fuel prices, Americans are
  more conservative in their spending
  
• Not eating out as much
• Not traveling as much
• Using alternative forms of transportation
• Buying hybrid cars vs. large suvs
• Not buying as much at gas stations