Impact Of Fluctuation In The Price Of Oil On Transportation Industry: Essay.

Factors affecting global economy

Discuss about the Technical And Environmental Effects Of Biodiesel.

The worldwide economy has been going through their most tough times due to the advent of several kinds of events that are taking place in several countries. The development of the economies of the countries globally is dependent on several factors and it is seen that all these aspects are taken into consideration by the government of the countries. The government has the role of taking care of their citizens who are residing in the country. Shaeri, & Katircio?lu (2018) explained that one of the main concerns of the citizens of the country has been the rise in the price of the commodities that are used for daily use. This has been a common issue that is faced by the global economy. One of the essential elements that have an impact on the prices of the commodity has been the rise in the price of oil. Oil has significant amount of impact on the prices of the other products as it is seen that most of the products need to be transported from one place to the other and therefore prices of oil is included in the price of the products (Le, & Chang 2015). On the other hand, it is seen that oil as a product is used as a raw material for several kinds of industries. It is seen that transpiration and energy prices are essential for the industries as they can have an influence on the profitability and cash flow of the companies as it is seen that all of them are connected to the price of oil. Hence, it is seen that both oil price and transpiration are interconnected to each other and hence the impact of oil price on the transportation companies and their stocks needs to be assessed. 

Transportation industry has been one of the most important industries that are existent throughout the world with the help of which all kinds of interactions and transportations take place where goods, commodities and human beings move from one place to the other. Transportation can be done with the help of various kinds of mediums and channels and it is seen that oil has a significant role to play in the development of the transportation industry (Al-Maamary et al., 2017). With the advent of time, there has been an observation that there has been fluctuations in the prices of oil and it is seen that accordingly there have been changes in the prices of the other commodities and products as well. Therefore, in the current time period assessment of the price of oil need to be assessed from time to time with the help of which the development of transport sector can be understood and thereby changes in the stock prices of the companies can be understood in an effective manner.

Impact of oil price on commodity prices

The main issue that has led to the development of this paper has been the changes in the price that have been taking place. The changes in the price of oil has an impact on the transport sector and thereby has indirect impact on the other sectors in the economy as well. The transport sector has been going through various kinds of diversifications and changes and therefore the overall impact of price of oil in the transport industry needs to be understood with the help of which better development of the transport industry can be undertaken (Hadi et al., 2017). This would even be helpful in the creation of strategies among the transport companies with the help of which the companies can change their plans and operations in accordance to the changes in the price of oil.

The objectives of the research are given as follows:

• Assess the impact of fluctuation of oil price on the performance of the transportation industries

The research question is prepared so as to answer the element that is creating a problem and thereby addressing this question in order to attain justifiable results. The research question is given as follows:

Q1. How does fluctuation in the price of oil have an impact on the performance of the transportation companies?  

The significance of the concerned research has been due to the fact that understanding the impact of oil price fluctuation in the transportation industry and the companies associated with would be helpful for these companies to construct plans and strategies with the help of which the companies can understand the changes that are taking place in the price of oil and thereby they can make changes in their operational activities and maintain optimum level of business. This is the vital factor that are motivated the researcher to undertake an assessment on this topic.

The hypothesis of the research is:

H₀: Oil price fluctuation does not have an impact on the performance of the transportation companies

H₁: Oil price fluctuation has an impact on the performance of the transportation companies

This segment of the current report paper comprises of the aspects and the components that have been addressed by numerous other analysts and researchers in their past research paper in relation to this topic. This would lead to enhanced knowledge and understanding of the topic and accordingly this paper can move forward in relation to the changes that have been taking place in the transportation industry and thereby the impact at the current point of time in relation to the fluctuations in the price of oil can be understood in a better way.

Impact of oil price on transportation industry

The fall in the price of oil is having significant amount of impact on the transportation sector. With the fall in the cost of fuel, the transport organizations are able to able save their money. The consumers have been looking to save their money too, which has a positive impact in the worldwide trade and certain medium of transportation (Zhang, & Tu 2016). But these kind of changes in the environment even has a negative side as it leads to the creation of a new level of possibilities. The organizations may even have to look into the routes and thereby think of the strategies that are competitive in nature. These aspects can be considered by looking into the several transport sectors and the companies associated with it.

A key element of the operating expenses has been fuel and this has been a huge encouragement to the bottom line. Some of the airline organizations are connected to the process of hedging that comes into the level of profit (Pili et al., 2017). Conversely, the airline companies can now rethink their hedging agreements in order to lock in the present level of price.       

With the extent of increased amount profits, the airline companies can incorporate new paths and routes and develop the capacity of the routes that are existent. This would permit them to optimally utilise their planes and even purchase new planes. It is even possible that in case the demand falls and the ability increases, a rise in the level of competition will lead to the fall in the fare price (Kristjanpoller, & Concha 2016).

There are numerous companies that have placed bigger amount of orders for better and new, more fuel effective planes, but now in the current time period may look to postpone their orders. On the other hand, with the availability of more and more cash, this would be better time to modernise the fleets. It is seen that the airlines can even make money in order to make their services much more comfortable and this would be helpful in the attainment of new and potential customers.

The fall in the prices of oil is effective for the railway industry in the shorter time frame. This process of pricing permits to make more and more money and is even able to satisfy their customers as they have been paying lower level of surcharges for the fuel. But it is seen that as the oil prices reduce, railway industry loses certain percentage of their cost advantage over the process of trucking. Certain customers may even look to undertake the service of trucking, which is generally more effective and faster (Kang et al., 2017). Therefore the rail related operators have been taking measures in order to enhance their speed and reliability. The operators may even look to consider the changes in the routes, which could make their services much more competitive. The passenger associated operators in rail go through a different kind of threat. With the fall in the price of oil, more passengers may look to drive their own cars rather taking assistance of the public transportation. On the other hand, there are other passengers who may look to stick with rail, for the purpose of commuting due to traffic and issues related to the environment.

Research question and hypothesis

The lower amount of the prices of oil is beneficial for the truck companies. It reduces the price gap in relation to railway and thereby makes it even more competitive. This in a way assists the truck organizations to regain the customers they had lost. In the long term aspect, lower level of cost of fuel means that the truck companies can adjust their routes and networks in order to serve their customers in an effective manner (Basnet, & Upadhyaya 2015). This even permits the truck companies to sustain their older, less fuel effective vehicles on the road for a longer time period. 

The shipping industries take advantage of lower level of the cost of operations and increased margins in the shorter period of time. This even means that the ship companies need to plan about the sort of ships that is within their fleet. The rise in the price of oil led to numerous companies turning to better, more effective ships, diminishing their speed of travel and consolidation to the bigger ships (Bai et al., 2016). In the current time period, the organizations can deploy faster, smaller and less fuel effective ships on certain kind of routes. They can even look to delay the acquisition of newer ships in order to preserve their extent of profit. By looking into the various mediums of transportation, it can be said that the decline in the prices of oil leads to the fact that increased margins for the transportation companies and certain attainment of the savings to the customers. However, it is very difficult to estimate the time till which the reduced prices would last (Shaeri et al., 2016). Hence, it can be said that fluctuations in the price of oil has an impact on the development of the transportation companies.

In the current time period, the companies have been resilient to the oil shocks in accordance to the past behaviour. Zhu et al., (2016) assessed the macroeconomic impacts of shocks that have taken place over the years and thereby have expressed that the impact of the shocks due to the oil price have fallen over the years and this can be accredited to the rise in the energy effectiveness of the economy, small amount of impact on the oil on the wages and even on the result, employment and developments in the monetary policies.

It has been established that how the rise in the price of oil has an impact on the macro economy, it is then seen that it is general for such impact to be perceived by the bigger companies in the economy as well. It is seen that most of the companies can be categorised into the ones that make use of oil to be an input or manufactured as a result, so that the impact can be either in the supply or the demand side. Lin et al., (2014) examine the impact of oil price shocks on the demand and the supply in several kinds of industries. They have concluded to the fact that the industries that are oil intensive has been like petrochemicals and chemical industries, the effect of the oil price is on the supply side and for the other companies like the transportation industry the effect is on the demand side (Dreger et al., 2016).

Impact of oil price fluctuation on transportation companies

In the current time period, it is seen that the focus has moved from the prices of the oil and its impact on the financial markets and it is seen that impact has been mostly on the stock market. There have been several researches that have looked to assess the connection among the equity performance and the shock of the oil prices. The existence of the oil shocks that has been positive and negative has led to the generation of more researches. Sheng et al., (2017) undertook an assessment of the relationship among the price of oil and the stock returns for 35 industry indices and have discovered a negative effect on the equity returns for all the industries except for the oil, gas and mining companies. Another assessment was done among the relationship among the price of oil and the value of the equity of the UK listed oil and gas industries and thereby have found that relationship has been positive and is generally increasingly significant. An increase in the price of oil and the equity market will lead to the rise in the return in the index of UK oil and gas (Sheng et al., 2016).     

The outcomes that have been explained earlier indicates a positive relationship among increased oil prices and the returns that have been attained from the stocks of the oils and gas and even in the stocks of the transportation companies (Huang et al., 2017). It is seen that such kind of environment of price will enhance the level of cash flows of the companies of oil and gas and this has been proven to be beneficial for them. Hence, it can be said that the impact of price of oil on the returns from the stock of the industries and the market indices, which has been an interest source for various kinds of researches.

The literature in accordance to this report has therefore addressed what other researchers have suggested in accordance to this topic. It is seen that impact of oil prices on the transport sector has been explained and it is seen that thereafter fluctuations in the oil prices in relation to the stock indices would be understood. In this way, it has been helpful for the researcher to understand the ways and means with the help of which assessment on this topic can be understood in an effective manner.

Impact on various transportation sectors

The introduction in relation to this chapter will look to explain the sort of data that would be used for this report and thereafter the process of data collection would even be highlighted. The researcher in this section of the paper will explain the philosophy, approach, design and the collection process of the data so that the reader can understand the authenticity and the validity of the data.

The philosophy related to this report is looking forward to discover the ideology, which is to be incorporated in order to collect the data by the researcher in order to attain the research objectives. The source and the nature of the research is evaluated with the help of reserach philosophy so that better and effective information can be used for the purpose of attainment of the result (Hao et al., 2016). It is due to this fact that the researcher has chosen realism philosophy due to the fact that the researcher would create knowledge on the topic and so that result for the research would be achievable.

The approach in association to this report paper relates to the use of the theories and the frameworks with the help of which the data would be gathered and thereby better and effective evaluation of the results can be achieved. There are two sorts of approaches that are available to the researcher and in relation to this report, deductive approach is utilised by the researcher because of the fact that theories and frameworks that have been used earlier by previous researchers would be used (Chao et al., 2015). This paper would be making use of secondary data as it is seen that the effect of oil prices on the stock indices would be understood. Therefore, available theories and frameworks would be used so that effective results can be attained.

The efficiency and the productivity of the report is understood with the help of the research design. The efficiency of the research helps in the evaluation and thereafter the interpretation of the information can be done in a proper manner. In relation to this report, it is seen that exploratory research design would be used due to the fact that extensive explanation would be done for the purpose of assessment of the data in order to reach the conclusion that has been desired for (Hämäläinen et al., 2015). The other designs have not been used as this design will evaluate the cause and effect relationship of the two aspects that have been taken into consideration.

The researcher in this paper has decided to exploit secondary data simply due to the fact that this paper has the intention of identifying the impact of oil price fluctuation on the transport companies and the impact on their stock indices. It is due to this fact that quantitative data analysis would be undertaken with the help of which all the aspects related to this topic can be attained with the help of the prices of the stocks of the companies that would be chosen. Quantitative data analysis would be helpful in the proper understanding of the impact of the changes in the oil price on the transport companies.

It has already been mentioned that secondary data would be used in this paper for the purpose of the analysis of the data and therefore this kind of data is attained by the researcher by taking support from online websites and numerous sorts of manual and electronic journals. It is even seen that books and annual reports that have been published by the companies have even been used with the help of which the data in relation to the topic could be collected and thereafter effective level of analysis of the data is possible in order to attain the desirable outcome.

The assessment of the information that is been recorded is done by making a comparison of the data in relation to the oil price fluctuations and its impact on the transportation companies. It is even seen that assessment of the hypothesis would even be done in order to create an idea about the fact that whether which of the constructed hypothesis holds true. The analysis would be done with the help of the stock prices of the companies and thereby comparison of the stock prices would be done in order to understand the oil price fluctuation on the performance of the transportation companies.

The researcher has preserved the ethical aspect and therefore all the data that is used in this paper are attained from valid resources. The authenticity of the data therefore leads to the conclusion that the results that would be achieved for this paper true and valid.

This chapter has the purpose of providing extensive assessment of the data so that this paper can be concluded within a specific time period. The evaluation would be done on the basis of the research objectives and thereby desired outcome of the paper can be discovered.

The analysis has been undertaken by selecting three companies from the oil and gas industries and three from the transportation industry. The three companies from the oil and gas industry are Exonn Mobil, Chevron and Cocono Philips and three transportation companies are XPO, UPS and Fed Ex. The stock prices of these companies would be assessed in order to have an idea about the impact of the oil stock prices on the stock prices of the transportation industries. The stock price of all the companies has been taken for the time period of ten years and therefore the stock price of the companies for the time period of 2008 to the 2018 has been taken into consideration.

The stock prices of Exonn Mobil address the fact that the stock prices have been ranging between $104.76 and $55.94 and the prices have remained in between the same for the past one month and this addresses the fact that there has not been a drastic change in the prices (ExxonMobil, 2018). This explains that the company has been performing in an effective manner and it is seen that this has been due to the fact that the oil prices have been stable and fluctuations have not been observed

The stock prices of Chevron for the past one month have been attained and it is seen that stock prices have ranged from $133.88 to $55.5 (Chevron Policy, 2018). There have been changes in the stock price but the fluctuation has been more than the one that is seen for Exonn Mobil. It is seen that oil prices have not changed much as well and therefore one can say that the fluctuations have been low.   

The stock prices of this company indicate the fact that the stock prices have ranged from $87.09 and $29.44 (ConocoPhillips, 2018). The movement of the stock price has not been much and therefore it indicates that the oil price fluctuations have been low.

The overall estimation of all the three companies addresses the fact that the oil prices have been low and there has not been significant amount of fluctuations in the price and hence the stock prices of the three companies have been stable.

The stock prices for this company have been good and this explains that the company has been performing in an effective manner in the economy. The stock prices have ranged from $115.49 and $2.52 (XPO Logistics, 2018). There have been fluctuations and the extent has been significant. This explains the fact that the company and their operational activities have been efficient in the later period of the 10 years and therefore has been making profits and is able to develop their level of performance.

The stock price for this company has been similar to XPO as well and therefore one can say that the company has been performing in an effective manner. The stock prices have been ranging between $135.53 and $46.41 (UPS. 2018). It is again seen that the stock price fluctuation has not been that high and therefore it can be said that the performance of the company has been good and has the potential for future development.

The stock price of Fed Ex has been a bit high in accordance to the other companies and it is seen that the stock price has ranged from $274.66 and $49.76 (FedEx 2018). In the same way to the other companies, it is seen that fluctuation of the stock price for this company has been low as well thereby determining the fact that the performance of the company has been good.

The overall explanation and the comparison of the stock prices of the two industries determines the fact that the stock prices of the oil companies is dependent on the price of the oil and therefore as the fluctuation of the oil prices have been low and the price of oil has been low, it is seen that the stock price of the transpiration companies have been high and has been performing in an effective manner. The results even explain the fact that the as the stock price fluctuation of the oil companies have been low, the extent of fluctuation of the stock prices of the transportation companies have been low as well and thereby explaining  that the low prices of oil leads to better performance of the transportation companies. The results indicate that the impact of the fluctuation of the oil prices on the performance of the transportation companies positive and high, which explains that the changes in the price of oil and performance of the transportation companies are positively correlated and therefore as the price of oil has been low, the performance of the transportation companies have been better.

The two hypothesis that has been constructed earlier have looked to either find a positive correlation and a negative correlation and the results indicate that alternate hypothesis has been attained as the explanation of the data has been able to explain the fact that changes in the oil price is positive correlated to the performance of the transportation industries and therefore one can say that changes in the price of oil has a direct and positive impact on the performance of the transportation companies. Hence, alternate hypothesis has been selected.

Conclusion and Recommendation and Future Work

Conclusion

The evaluation of the data that has been collected in accordance to this report paper has been successful in attaining the outcome of the paper. The results that have been obtained is a concise and a precise one and the results have been similar to the research outcomes that have been addressed in the literature review. The authenticity of the result can be understood once the result is able to answer the objectives of the research. The objective of the research has been understand the impact of oil price fluctuations in the performance of the transpiration companies and the outcome of the paper has been successful in answering the same as it is seen that results explain the oil price change have an impact on the performance of the transpiration companies and the two variables are positively correlated to each other.

The outcome of the paper creates the development of recommendations that can be utilised in the future course of time in order to enhance the performance of the companies and accordingly understand and construct strategies with the help of which the companies can understand the changes in the price that have been taking place and thereby stay ahead with their plans and strategies with the help of which the impact can be lowered. It is therefore recommended that the transportation companies assess the market as well as the stock prices of the oil companies in order to create an understanding of the changes that would take place so that they would be ready in order to handle such issues and thereby be successful in mitigating these issues. It is even recommended that the companies maintain contingency plans and policies so that in case of fluctuations the impact on their performance would be low. The incorporation of these suggestions can be helpful for the transportation companies to enhance their performance and reduce the dependency on the price of oil and the oil and gas companies.

Research at any future course of time can be undertaken simply because of the fact that the prices as well as the stock price for both the industries could change and the various internal and external factors can have an impact on the performance of the companies. It is due to this fact that future research on this topic can be undertaken so that the differences with the current research would be understood and thereby the changes that have taken place would be understood in an effective manner.

Reference List

Al-Maamary, H. M., Kazem, H. A., & Chaichan, M. T. (2017). The impact of oil price fluctuations on common renewable energies in GCC countries. Renewable and Sustainable Energy Reviews, 75, 989-1007.

Bai, A., Jobbágy, P., Popp, J., Farkas, F., Grasselli, G., Szendrei, J., & Balogh, P. (2016). Technical and environmental effects of biodiesel use in local public transport. Transportation Research Part D: Transport and Environment, 47, 323-335.

Basnet, H. C., & Upadhyaya, K. P. (2015). Impact of oil price shocks on output, inflation and the real exchange rate: evidence from selected ASEAN countries. Applied Economics, 47(29), 3078-3091.

Chao, M. C., Huang, W. H., & Jou, R. C. (2015). The asymmetric effects of gasoline prices on public transportation use in Taiwan. Transportation Research Part D: Transport and Environment, 41, 75-87.

Chevron Policy, G. (2018). Chevron Corporation - Human Energy. chevron.com. Retrieved 23 June 2018, from https://www.chevron.com/

Dreger, C., Kholodilin, K. A., Ulbricht, D., & Fidrmuc, J. (2016). Between the hammer and the anvil: The impact of economic sanctions and oil prices on Russia’s ruble. Journal of Comparative Economics, 44(2), 295-308.

FedEx | Tracking, Shipping, and Locations. (2018). Fedex.com. Retrieved 23 June 2018, from https://www.fedex.com/en-us/home.html

Global Home: UPS. (2018). Ups.com. Retrieved 23 June 2018, from https://www.ups.com/us/en/global.page

Hadi, A. R. A., Yahya, M. H., & Shaari, A. H. (2017). The effect of oil price fluctuations on the Malaysian and Indonesian stock markets. Asian Journal of Business and Accounting, 2(1&2), 69-91.

Hämäläinen, E., Hilmola, O. P., & Hetemäki, L. (2015). Fluctuating demand and its impacts to a paper producer: customer analysis. Expert Systems with Applications, 42(13), 5779-5788.

Hao, H., Liu, Z., Zhao, F., & Li, W. (2016). Natural gas as vehicle fuel in China: A review. Renewable and Sustainable Energy Reviews, 62, 521-533.

Huang, S., An, H., Gao, X., & Sun, X. (2017). Do oil price asymmetric effects on the stock market persist in multiple time horizons?. Applied Energy, 185, 1799-1808.

Kang, W., de Gracia, F. P., & Ratti, R. A. (2017). Oil price shocks, policy uncertainty, and stock returns of oil and gas corporations. Journal of International Money and Finance, 70, 344-359.

Kristjanpoller, W. D., & Concha, D. (2016). Impact of fuel price fluctuations on airline stock returns. Applied Energy, 178, 496-504.

Le, T. H., & Chang, Y. (2015). Effects of oil price shocks on the stock market performance: Do nature of shocks and economies matter?. Energy Economics, 51, 261-274.

Learn more about ExxonMobil. (2018). ExxonMobil. Retrieved 23 June 2018, from https://corporate.exxonmobil.com/en

Lin, B., Wesseh Jr, P. K., & Appiah, M. O. (2014). Oil price fluctuation, volatility spillover and the Ghanaian equity market: Implication for portfolio management and hedging effectiveness. Energy Economics, 42, 172-182.

Pili, R., Romagnoli, A., Kamossa, K., Schuster, A., Spliethoff, H., & Wieland, C. (2017). Organic Rankine Cycles (ORC) for mobile applications–Economic feasibility in different transportation sectors. Applied Energy, 204, 1188-1197.

Shaeri, K., & Katircio?lu, S. (2018). The nexus between oil prices and stock prices of oil, technology and transportation companies under multiple regime shifts. Economic Research-Ekonomska Istraživanja, 31(1), 681-702.

Shaeri, K., Adaoglu, C., & Katircioglu, S. T. (2016). Oil price risk exposure: A comparison of financial and non-financial subsectors. Energy, 109, 712-723.

Sheng, D., Li, Z. C., Fu, X., & Gillen, D. (2017). Modeling the effects of unilateral and uniform emission regulations under shipping company and port competition. Transportation Research Part E: Logistics and Transportation Review, 101, 99-114.

Sheng, Y. A. N. G., & Ling-Yun, H. E. (2016). Fuel demand, road transport pollution emissions and residents’ health losses in the transitional China. Transportation Research Part D: Transport and Environment, 42, 45-59.

Stories, s., Resources, C., Report, A., Report, S., Sheets, F., & Maps, G. et al. (2018). ConocoPhillips. ConocoPhillips. Retrieved 23 June 2018, from https://www.conocophillips.com/

Supply Chain Solutions | XPO Logistics. (2018). Xpo.com. Retrieved 23 June 2018, from https://www.xpo.com/

Zhang, C., & Tu, X. (2016). The effect of global oil price shocks on China's metal markets. Energy Policy, 90, 131-139.

Zhu, H., Guo, Y., You, W., & Xu, Y. (2016). The heterogeneity dependence between crude oil price changes and industry stock market returns in China: Evidence from a quantile regression approach. Energy Economics, 55, 30-41.

Bouri, E., Awartani, B., & Maghyereh, A. (2016). Crude oil prices and sectoral stock returns in Jordan around the Arab uprisings of 2010. Energy Economics, 56, 205-214.

Cheon, A., Lackner, M., & Urpelainen, J. (2015). Instruments of political control: National oil companies, oil prices, and petroleum subsidies. Comparative Political Studies, 48(3), 370-402.

Mostafa, M. M., & El-Masry, A. A. (2016). Oil price forecasting using gene expression programming and artificial neural networks. Economic Modelling, 54, 40-53.

Sanusi, M. S., & Ahmad, F. (2016). Modelling oil and gas stock returns using multi factor asset pricing model including oil price exposure. Finance research letters, 18, 89-99.

Singhal, S., & Ghosh, S. (2016). Returns and volatility linkages between international crude oil price, metal and other stock indices in India: evidence from VAR-DCC-GARCH models. Resources Policy, 50, 276-288.

Sun, C., Luo, Y., Huang, Y., & Ouyang, X. (2017). A comparative study on the production efficiencies of China's oil companies: A true fixed effect model considering the unobserved heterogeneity. Journal of Cleaner Production, 154, 341-352.

Taghizadeh-Hesary, F., Yoshino, N., & Rasoulinezhad, E. (2017). Impact of the Fukushima nuclear disaster on the oil-consuming sectors of Japan. Journal of Comparative Asian Development, 16(2), 113-134.