Oil Prices Pushing Down Business Costs, Not Just for Airlines, Shippers – Real Time Economics

Falling oil prices are cutting costs for Southwest Airlines and other businesses.
Associated Press

Businesses are paying less for everything from air freight to lubricants, showing that the steep drop in global oil prices is benefiting more than just consumers at the gas pump.

The savings have the potential to bolster profits and could eventually trickle down to consumers.

For now, energy-related costs are posting the largest drops. The price one business charges another for gasoline fell 14% from a year earlier in November, the Labor Department said Friday. Jet fuel is down 10% and diesel fuel has fallen 11%.

That’s a positive sign for airlines, shipping firms and other companies that depend heavily on fuel.

“These oil prices, if they continue…our operating costs will be lower than we thought,” Southwest Airlines Co. Chief Executive Gary Kelly told investors this week. “And that’s good for everybody.”

Prices for certain business services are also easing.

Air freight costs are down 2.6% from a year earlier. Truck transportation costs fell the past two months, offsetting gains earlier in the year. Airline passenger prices have fallen for three straight months, though were still up 2.6% from a year earlier.

Prices of several commodities derived from oil are down from a year ago. Lubricating oil base stocks have fallen by 21%, synthetic rubber costs are down 2.7% and plastic packing prices fell 1.2%.

How much of those savings will be passed along to consumers is difficult to judge given that labor costs, customer preferences and competition have a greater sway on most consumer goods—including airfares, clothing and tires—than on gasoline.

“Prices in most industries rely on a number of factors, not just the cost of oil,” said Doug MacIntyre, an analyst at the U.S. Energy Information Administration.

Lower fuel and shipping prices are helping to hold down costs for retailer Dollar Tree Inc., but diesel prices would need to fall further to provide a major boost to the bottom line, chief executive Bob Sasser said last month.

“It has to move quite a bit to have a significant effect on the overall costs because the fuel is just one component of the overall trucking rate that we end up paying,” he told investors.

Similarly, lower prices for chemicals, fuel and rubber should reduce costs for manufacturers, but those materials are only a fraction of total input costs.

And not all petroleum-laden products are recording year-over-year price declines. Plastic resin costs fell in price last month, but remain up 5.6% from a year earlier. Asphalt prices are up more than 10% from November 2013.

Related coverage:

U.S. Producer Prices Down 0.2% in November

Pump Prices Prime Economy for Growth

Lower Gas Prices Like Huge Tax Cut for Middle Class

How Cheaper Oil Affects U.S. Factories

Where U.S. Factories Have the Most to Gain From Cheap Oil

Cheaper Oil Will Actually Hurt Factory Sector’s Growth, Manufacturers Say

WSJ Survey: Oil Prices Are Near Their Bottom



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12 December 2014 | 8:20 pm – Source: blogs.wsj.com


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