The oil and gas market is currently experiencing the most disruption it’s seen in history. Every peak and valley creates a ripple effect throughout logistics and the supply chain, from record lows to extreme highs.
During Covid, we saw a significant decline in demand for oil and gas, causing prices to plunge. When the world began to bounce back, demand and prices surged again, only to climb even higher in the wake of the Russia-Ukraine conflict.
Russia, the world’s third-largest crude oil supplier, has manipulated the supply to harm countries they feel are a threat. As these countries turn to their reserves, forge new alliances, or pivot to renewable sources, prices start to drop again, but the writing is on the wall. Most have vowed not to allow themselves to remain in a position where they are dependent on outside support and may be closer than ever to a permanent switch to alternative energy.
Meanwhile, oil-producing countries have stopped importing fuel from Russia, and overall, imports of Russian oil have dropped by about 90%. Sanctions against Russia mean they will have difficulty shipping their product anywhere. Manufacturers of oil and gas equipment have also left the market, signaling an end to once-booming trade routes in the European energy sector.
9 Tips to Reduce Ocean Freight Costs
How Does the Oil and Gas Outlook Affect the Supply Chain?
Oil and gas market disruption has a direct effect on the logistics sector. As prices increase, shipping companies that rely on gasoline to fuel their fleets must raise prices, which are then passed on to the customer.
While larger shipping companies might be able to absorb some of the impact based on their volumes, smaller companies are feeling the pinch. Because of the higher costs, shippers and consumers alike are looking for alternatives. When coupled with inflation, it’s clear that consumer confidence is low; therefore, spending has dropped. So, even though gas prices are falling, demand for goods is also down.
But what does this mean for oil and gas shippers?
Oil prices are high, and demand is increasing. On the heels of the downturn, shippers need a solid strategy to carry them through while maintaining profitability.
Here are some tips to help you mitigate rising oil and gas shipping rates.
1. Compare transportation modes to ensure you are getting the best possible rates. Most digital logistics platforms allow you to do this but working with a trusted 3PL with experience in the energy sector is always advisable.
2. Plan as far in advance as possible to avoid delays. Ocean freight is more economical, but your shipment will take longer to arrive.
3. Increase your capacity to offset delays and shortfalls. Having a reserve in case of unforeseen crises will help you keep your supply chain flowing.
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