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Effects Of The Rising Oil Prices On The Transportation Industry

1944 words - 8 pages

The transportation industry relies on oil to keep its road, rail, maritime and air networks operating. As time goes on oil is becoming increasingly scarce resulting in price increases. This research essay will delve into the effects of rising oil prices will have on the transport industry along with solutions.

Oil is the main driving force behind the transportation industry as no other alternatives burn as cleanly, or are as safe to transport. Bio fuels have created a niche in the market but unfortunately there is no feasible way to harvest enough biofuel to meet the worldwide oil demand. When oil first became a commercial operation in the 1860’s there were two wells in America that produced a total of 6,500 barrels a day; at the time this was enough to accommodate for demand worldwide. In more recent times we are extracting around 70 million barrels of oil every day to keep up with demand (Tabak 2009). The rising cost of fuel generally comes from development in extraction technologies or recalculated estimates of remaining deposits within the reserves. The rate of discoveries of large oil and natural gas reserves has been on the decline for the past 40 years (Wilson & Burgh 2007).

Fuel is the highest operating expense faced within the transportation industry. Without smart planning companies may become unable to remain competitive or economically viable in the market due to the rising cost of fuel (Sowinski 2013). In the late 20th century additional costs would generally be pushed onto the customer but as competition has increased in the transportation market this would lead to the customers taking their business to cheaper firms that offer the same service. This is where the role of the transport manager comes into play to design efficient systems that reduce the cost per unit per kilometer (Coyle et al. 2011).

Rail carriers are the most cost effective mode of cargo transport on land as Freight Rail Works (2014) in the United States demonstrates as they claim that their rail system is four times more efficient than trucks. They claim that they are able to transport one tonne of goods 476 miles on a single gallon of fuel. Unfortunately Australia’s railroads don’t operate as frequently, nor are they as extensive as those in the US. The Sydney-Melbourne rail route in theory would be a more attractive option than trucking but unfortunately this isn’t the case. Rail freight experiences a much longer long transit time compared to trucking between the two capital cities. The outdated rail infrastructure has low speed restrictions, sharp bends and detours. To make matters worse rail transport is affected by the carbon tax whereas trucking isn’t. This, in combination with the fact that rail involves more handling which further increases logistical costs makes trucks the favorable option (Szanto 2013).

Traffic infrastructure has a critical role in fuel consumption within trucking. Countries that suffer from poor traffic infrastructure...

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