Freight transportation providers responded to COVID-19 pressures heroically, becoming leaner, more collaborative and efficient. And while this is good news for the nation’s freight network, shippers should expect significantly higher rates across all modes in the months ahead as the world moves through recovery.
By Patrick Burnson, Executive Editor
Within this context, no discussion of freight transportation costs can be understoof without first looking at the energy picture. Derik Anderoli, principal at Mercator International and a frequent contributor to Logistics Management, says that it looks like we’ll enter 2021 with “significant headwinds” that will continue to suppress oil demand and prices.
Andreoli maintains that oil demand is on track to decline in between 8.5 million barrels per day and 9.0 million barrels per day, while domestic production will likely continue to dip at least through the first half of 2021, as the global economy is expected to continue to struggle with new waves of virus infections.
“The U.S Energy Information Agency predicts that demand will only grow by 5.9 million barrels per day in the coming year, which will leave global demand around 3 million barrels per pay below 2019 levels,” says Andreoli. “And for this reason, we should expect to see oil prices continue to remain low, through uncertainty around the continued collective determination among OPEC members to maintain production cuts is likely to cause price volatility.
Andreoli adds that this volatility could be intensified by a “global geopolitical reset” that could come about as a result of change in the U.S. leadership. “It’s unclear how eager President Biden will be to re-engage Iran with a new nuclear deal, resulting in increased Iranian oil production,” he says. Meanwhile, the entire Middle East region – which has seen four historic peace deals brokered in recent months – could destabilize.”
For these reasons, says Andreoli, logistics managers should expect crude oil proces to be volatile throughout the coming year. “But most needles point to persistently low oil prices, and this should translate to low fuel prices,” he concludes.