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The bad news is that lower oil prices don’t instantly mean lower costs for shippers and transportation companies. Diesel, the fuel of choice for most trucking companies, has not seen the same price drop that gasoline has over the past six months. Even if it did, any drop in prices sees a corresponding drop in fuel surcharges, so the cost savings are wiped out by lower revenues.
But none of that really matters. The boom for logistics companies that comes from lower oil prices has very little to do with how much they pay for fuel.
There’s new debate among Canadian economists about whether the loonie is a resource-based currency. “Resource-based” means that the market price of the country’s natural resources has a direct effect on the value of the loonie.
In recent years, some economists contend that the loonie has broken free of the chains that tied it to resource prices.
But if anyone is looking for proof that the opposite is true, that the loonie is inextricably linked to raw materials markets, particularly oil, they need look no further than the bank of Canada’s recent reduction in interest rates.
In response to sinking oil prices, which have plunged more than 50% since last June, the Bank cut its key overnight lending rate by .25%. While that’s only a quarter of a point, it means lots of interest-bearing foreign investment in Canada suddenly had its returns cut by 25%.
The reaction was swift and the flight of capital from Canada resulted in a whopping 1.5 cent decrease in the loonie’s value.
The Benefit for Logistics Companies
So what does all this have to do with third party logistics and fulfillment companies? A lot
A lower loonie means Canadian products cost less in other countries. In late 2012, Americans would have paid about $10.30 for a Canadian export that cost $10.00 in Canada. After the recent rate cut, they will pay less than $ 8.10 for that same $10.00 Canadian export.
So Canadian exports are more attractive to other countries, which means they will be buying more Canadian goods. Goods like those sold by your customers. Goods that you warehouse, pack and ship.
Fasten your seatbelts, most experts are predicting that the loonie will fall further. Every drop will mean a potential increase in business for logistics companies.
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