Falling oil prices, and thus transportation fuel costs, will have different effects on these different modes, according to a report recently issued by a major investment bank.
The report observed that freight carriers generally charge customers fuel surcharges based on lagged recent prices. Carriers like road freight companies tend to have short lags, basing these surcharges on diesel prices from the past week or so, while rail and parcel carriers have longer lags.
The report concludes that falling fuel prices can, in the short term, provide a windfall to those carriers with longer lags, although a prolonged drop in prices would eventually cut into these profits.
The report also noted that falling oil prices could indirectly benefit the higher-cost, faster modes of freight, like air express and ground parcel. A big part of why these transport modes are so expensive is their higher rate of fuel use, so a prolonged drop in fuel prices could reduce the difference in costs between these and slower, cheaper, less fuel-intensive carriers like road freight, trains, and ships. This could lead to greater demand for the faster options, especially because they are more consumer-focused than the production-heavy trains and barges.