Research Report: Oil Price Impact on US Transportation Industry

This report explores the impact of oil price fluctuations on the performance of the transportation industry in the USA. It examines the relationship between the stock prices of oil companies (Exxon Mobil, Chevron, ConocoPhillips) and transportation companies (XPO, UPS, FedEx) to understand this impact. The report provides a background on the oil and gas and transportation sectors, outlines the research objectives and questions, and reviews relevant literature. Secondary data is used for analysis, and the findings address the research hypothesis regarding the correlation between oil price volatility and transportation company performance. The research methodology, data analysis, and conclusions, along with recommendations for future research are also presented. Desklib offers a platform for students to access this and other solved assignments.

Running head: FINANCIAL RESEARCH
Financial Research
Name of the Student:
Name of the University:
Author’s Note:

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Abstract
This report associates to the creation of the understanding of how the fluctuation of oil price has
an impact on the performance of the transportation industries in USA. In order to create an
understanding, the stock prices of oil companies as well as the stock prices of the transportation
companies have been taken into consideration and accordingly the impact and the relationship
would be understood. The background of the paper has explained the performance oil and gas
companies as well as the transportation companies and how they are connected to each other.
The objective of the paper has tried to highlight the aspect that would be determined in this
paper. The literature has provided similar researches and their outcomes in order to provide a
guideline for this report and therefore for the purpose of analysis, secondary data has been used.
The outcome of the paper has been possible which has been addressed in the report itself.

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Table of Contents
Chapter 1: Introduction....................................................................................................................5
1.1 Background of the Study.......................................................................................................5
1.2 Problem Statement.................................................................................................................6
1.3 Research Objective................................................................................................................6
1.4 Research Question.................................................................................................................7
1.5 Research Significance............................................................................................................7
1.6 Research Hyporeport.............................................................................................................7
Chapter 2: Literature Review...........................................................................................................8
2.1 Introduction............................................................................................................................8
2.2 Oil Price Change....................................................................................................................8
2.2.1 Airlines...........................................................................................................................8
2.2.2 Rail..................................................................................................................................9
2.2.3 Trucking........................................................................................................................10
2.2.4 Shipping........................................................................................................................10
2.3 Relationship between oil price and the stock performance.................................................11
2.4 Summary of the Literature...................................................................................................12
Chapter 3: Research Methodology................................................................................................13
3.1 Introduction..........................................................................................................................13
3.2 Research Philosophy............................................................................................................13

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3.3 Research Approach..............................................................................................................13
3.4 Research Design..................................................................................................................14
3.5 Choice of the Methodology.................................................................................................14
3.6 Process of Data Collection...................................................................................................14
3.7 Data Analysis Plan...............................................................................................................15
3.8 Data Reliability and Validity...............................................................................................15
Chapter 4: Data Analysis...............................................................................................................16
4.1 Introduction..........................................................................................................................16
4.2 Analysis...............................................................................................................................16
4.2.1 Exonn Mobil.................................................................................................................16
4.2.2 Chevron.........................................................................................................................17
4.2.3 Cocono Phililps.............................................................................................................18
4.2.4 XPO..............................................................................................................................18
4.2.5 UPS...............................................................................................................................19
4.2.6 Fed Ex...........................................................................................................................20
4.3 Discussion............................................................................................................................20
4.4 Hyporeport Testing..............................................................................................................21
Chapter 5: Conclusion and Recommendation and Future Work...................................................22
5.1 Conclusion...........................................................................................................................22
5.2 Recommendation.................................................................................................................22

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5.3 Future Research...................................................................................................................23
Reference List................................................................................................................................24
Bibliography..................................................................................................................................28

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1. Introduction
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, & Katircioğlu (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.
1.1 Background of the Study
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.

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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.
1.2 Problem Statement
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.
1.3 Research Objective
The objectives of the research are given as follows:
 Assess the impact of fluctuation of oil price on the performance of the transportation
industries

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1.4 Research Question
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?
1.5 Research Significance
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.
1.6 Research Hypothesis
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

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2. Literature Review
2.1 Introduction
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.
2.2 Oil Price Change
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.
2.2.1 Airlines
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

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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.
2.2.2 Rail
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

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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.
2.2.3 Trucking
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.
2.2.4 Shipping
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

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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.
2.3 Relationship between oil price and the stock performance
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).
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