Diesel Fuel Pricing Effects on Trucking Enterprise
The Frame of Reference
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Diesel Fuel Consumption for Transport as a ratio of overall Oil consumption
Cost of Fuel consumption in trucking enterprises
Impact of Diesel price increase on trucking enterprises
Planning and control of fuel costs for attaining competitiveness
SWOT Matrix
The capitalism and market systems have evolved over the years and incorporated various basic principles of exchanging goods and services. The traditional markets in the history were known for their characteristics such as places of gathering buyers and sellers, exchange of goods, and individual business. However over the years the markets have evolved into virtual and physical places where goods, services, ideas, interests, and knowledge in not only shared but it is exchanged. The information, knowledge, relationships, and interdependency have taken over the historic components of access, capital, and privileged information. All the required characteristics are easily accessible through internet and technology integration has automated the process of information gathering, market data, and related factors. At the same time it is also observed that the technology has empowered the assessment process of decision making with respect to the influential factors effecting trade, commerce, and business activities. The stages of technological and market factors maturity is also among the developments of business and commerce activities. The dependency of various factors in formulating demand and supply of various commodities have seen addition of various factors including the information, prices of raw material, fuel prices, means of communications, accessibility, and selling process. Similarly transportation has a key role in promoting trade through providing access to the markets of raw materials and finished products. Transportation is also regarded as a basic element of modern supply chain management systems and business integration. The sections below are focused to explore and assess the impact of fuel process on transportation industry.
Li, Chen, & Yao (2010) provide a detailed understanding of the fuel consumption requirements as a basis for transport and trucking industry. The research states that the long distance transportation trucking enterprises are energy based and consume a lot of fuel in order to operate. The energy consumption and conservation has a direct impact on the truck services providers. The competence of the organization is derived in accordance with its ability to ensure low consumption of fuel and reduced emissions. The research also depicts a standard consumption of fuel in china’s industry as annual national consumption of diesel fuel accounts for approximately 90% by the mentioned industry. It is also noted that the expenses of the transport industry are based 33% on the fuel cost of the vehicle. The important statistics define the importance of diesel fuel and its price as a variable having the most significant impact on transportation cost.
The Frame of Reference:
The frame of reference developed to address the issues related to the report is based on four key variables. These components are the country wide consumption of diesel fuel in most industrialized nations in order to facilitate the trucking industry. The second component is the cost breakup of fuel and other related expenses in trucking organizations. The third important factor is the impact of the fuel cost increase on a business providing transportation services. The relationship of the fuel cost and how an organization can reduce the cost in order to stay competitive and profitable in the market place. The impact of market variables and increase cost has a significant impact on the overall industry however the situations beyond an organization’s control require diligent planning and efforts to control the impacts of these factors for cost reduction.
Diesel Fuel Consumption for Transport as a ratio of overall Oil consumption:
It is understood that China, India, Russia, United States, and European nations utilize diesel fuel for various transports. It includes trucking industry, trains, and electricity generations. The electricity generation has a minimal usage of diesel as fuel as it is a costly alternative to renewable and other conventional techniques namely hydro and nuclear electricity generation units (Yergin, 2006). Coal and gas are also favorable fuel for electricity generation and it is also preferred due to its cost affordability and efficiency. The usage of diesel fuel is mostly observed in long distance transportations. It is also observed that diesel is the most used fuel for trucking and logistics of goods from and to the market. The usage of diesel in motor transport is estimated at 90% in China (Li et al., 2010).
United States also consumes 50% to 70% of the diesel fuel for its transportation sector including the light trucking and heavy transportation of goods from year 1950 to 2009 respectively. The world petroleum consumption per day is estimated at 80.25 barrels however U.S. share in the production is 9%. The consumption of petroleum in whole world isdepicted at 84.04 barrels per day while U.S. is consuming 22.2% of the globally produced oil. The average refinery production of diesel fuel in Europe is calculated at 39.0% and U.S. yields 25% of the diesel fuel. The most important figure in the research is that U.S. consumes 179% of its petroleum production for transportation industry. It is evident that a large quantity of the U.S. diesel oil consumption is used for heavy trucking and transportation of goods through trucking enterprises (Davis, Diegel, & Boundy, 2003). Since 1950 the U.S. transportation oil consumption has increase at the rate of 2.3% annually until 2009.
Cost of Fuel consumption in trucking enterprises:
The trucking services organizations operating throughout the world and within the local markets share similar indicators. However there had been changes in the structure and infrastructure of trucking enterprises since the adoption of environmental laws in various developed nations. It is observed that the transportations companies incur 30% to 40% of their expenses in terms of fuel. The petroleum products are not limited to the diesel consumption. It also impacts various lubricants and petroleum products used in the transportation industry as lubricants. The transportation prices and petroleum products costs have a direct relationship. The cost of operations increases as a result of global or local increase in diesel fuel prices.
Impact of Diesel price increase on trucking enterprises:
The significant impact of each penny increase in diesel prices is elaborated in the work of Ozener (2008). The research investigates the importance of fuel prices in providing freight services. The importance of fuel prices is elaborated through a detailed analysis of the situation and it is evident that the trucking industry as a whole has to pay $381 million excessive as a result of one penny increase in the diesel process. The industry had been under suppressive situation since 2005 as a result of souring diesel process. The increased cost of fuel has forced the industry leaders to develop a collaborative mechanism for sharing loads. The phenomenon of sharing has also created opportunities for acquisitions and mergers within the sector. The large corporations and small to medium sized enterprises had been developing means to increase fuel efficiency and decrease cost of operations. However the impact of diesel fuel process has also created an impact on the shippers and cost of transportation is also increased (Majumdar, Moynihan, & Pierce, 2009).
Planning and control of fuel costs for attaining competitiveness:
The inception of supply chain management and adoption of techniques for the calculation of key performance indicators has also influenced the services providers to investigate and improve their performance in accordance with the academic and professional research recommendations. This has resulted into adoption of some key elements in the transportation industry. The usage of fuel efficient vehicles including light weighted body of trucks and high efficiency engine types has taken precedence over traditional carriage vehicles (Teravaninthorn, & Raballand, 2009). The usage of bio-diesel fuel in various vehicles is also encouraged by the environmentalists and government initiatives. The trucking corporations require a detailed strategic plan for continuously reducing the usage of diesel fuel and reducing emissions in order to stay competitive within the industry.
SWOT analysis:
The analysis of strengths, weaknesses, opportunities, and threats provides a detailed understanding of the internal and external factors that influence the organizations. The assessment of the current and forthcoming situation also facilitates the business to take corrective strategic decisions for improving business performance. The assessments are investigated to define strengths and weaknesses of the business and in relation to these factors it helps in developing a mechanism for assessing the opportunities and forth coming threats. The SWOT analysis below provides an overall image of the enterprise in relation to the industry outlook.
SWOT Matrix:
Strengths:
Most important means of freight carrying and goods transportation.
Reduced fuel and emission can serve as a competitive advantage.
Business growth and expansion through competitive prices and collaboration.
Weaknesses:
Gradually increasing fuel prices
Investment requirements for fuel efficient vehicles and usage of bio-fuels
Lack of collaboration and updated technology to assess the latest innovations
Opportunities:
Growth potential due to increased supply chain management focus
Mergers and acquisitions provide expansion and growth opportunities for business
Competitive advantage of price conscious services and cost reduction in operations.
Threats:
Loss of industry as prices of oil are unstable due to market fluctuation
Long-term contracts cannot be formulated in the basis of changing prices
Gradual increase in prices can result into economic turmoil as raw materials and finished product prices will be increased lowering the economic process
Conclusion:
The trucking enterprises are significant in creating the United States transportation and freight industry. The transportation of raw materials and finished goods in required as most of the national and international corporations have established manufacturing systems in developing countries to take advantage of the supply chain management techniques. The business is significantly incorporating a market based approach. The influx of products and goods in high demand markets is one of the basic principles in free market economy. The business setup their manufacturing units in rural and industrial districts take advantage of the infrastructure and human resources available in these vicinities. However the cost of transportation form manufacturing unties to the developed markets is also one of the important factor requiring diligent planning and implementation.
The trucking enterprises spend one third to more of their expenses in terms of fuel and diesel. The given situation creates a direct effect of diesel prices and cost of transportation. The increased cost of diesel fuel cannot be controlled by the internal sources of organization. However there is a fierce need of restructuring the corporation on modern and fuel efficient means. It includes the replacement of traditional engine vehicles with the fuel efficient models. Usage of bio-fuels is also emphasized for its capacity to reduce emissions. It is essential for the business to include light body trucks in their fleets to facilitate the lowered consumption. Moreover the adoption of aerodynamic body designs also help in reducing air resistance and as a result the diesel fuel consumption is also effected.
References:
Davis, S.C., Diegel, S.W., & Boundy, R.G. (2003). Transportation energy data book: Edition 25 (No. ORNL 6970). United States. Department of Energy.
Li, Z.Z., Chen, M.Y., & Yao, H.G. (2010). “Trucks Trailer Plus” Fuel Consumption Model and Energy-Saving Measures. In Information Computing and Applications (pp. 204-211). Springer Berlin Heidelberg.
Majumdar, S.R., Moynihan, C., & Pierce, J. (2009). Public Collaboration in Transportation a Case Study. Public Works Management & Policy, 14(1), 55-80.
Ozener, O.O. (2008). Collaboration in transportation.USA: ProQuest.
Teravaninthorn, S., & Raballand, G. (2009). Transport prices and costs in Africa: a review of the main international corridors. World Bank Publications.
Yergin, D. (2006). Ensuring energy security. Foreign Affairs, 69-82.
