American Marine Transportation Industry

Abstract

This paper is aimed at investigating the relationship between crude oil price and the American marine transportation industry. Several previous studies are discussed in order to explore more relative information about the crucial role of crude oil in the modern society all around the world, which contributes to a better understanding of this study's goals and a more appropriate model designing. Three research questions are designed to examine the relationship between crude oil price and the American marine transportation industry. The results indicated that there is a significant positive relationship between crude oil price and marine transportation industry in the United States, which coincide with the results of previous studies.

Keywords: Marine transportation industry, crude oil price

The Relationship between Crude Oil Price and Marine Transportation Industry

Introduction

From 2004 to 2007, the price of crude oil has been sustained growing and finally peaked and then declined in 2008. Consequently, the world economy has been changed with the fluctuation of crude oil price. Numbers of economists even predict several possible detrimental effects of the crude oil price change except oil industry itself. Logically, one of the main victims is the marine transportation industry including both passenger and freight sectors which are closely related to the oil price.

Several scholars have been working on investigating the aftermath of crude oil price change in terms of the transportation industry all around the world. However, there are few studies directly related to marine transportation in the United States. As a contribution to fill the void, this paper is aimed at discussing the effects of crude oil price change on the whole transportation industry based on previous relative studies and exploring the impacts of crude oil price increasing since 2004 on the marine transportation industry in the United States. To be more specific, the research questions for this study will be:

1. Is there a significant relationship between crude oil price and marine transportation industry in the United States?

2. Is there a significant difference between the numbers of paid employees of American marine transportation industry in 2002 and 2008?

3. Is there a significant difference between the change of the numbers of paid employees of American marine passenger transportation industry and American marine freight transportation industry in 2002 and 2008?

Background

Back to the 1990s, the United States' crude oil price was sustained at a low level and economy was continuously prosperous. Therefore, during that period, the marine transportation industry in the United States did not encountered crisis except for the negative impact of the Gulf War and the war between Iraq and Kuwait. Unfortunately, the air transportation industry in the United States suffered its first serious crisis: the September 11 terrorist attacks in 2001, which was followed by the Iraq War which started in 2003. Consequently, the United States' economy was depressed and crude oil price began to increase rapidly.

Since then, according to Jang, S., Choi, K., & Lee, K., (2011), most major airlines, such as Delta, US Airways, and Northwest, were seriously impeded by sluggish economic environment and the increasing crude oil price. Some of these airlines filed for bankruptcy protection or even closed up. Through analyzing annual data from 15 major US airlines from 2000 to 2006, Jang, S., Choi, K., & Lee, K., (2011) indicated that the crude oil price was a crucial factor to airlines operation especially cost control.

In addition, as Lu, J., & Chen, C. (2010) stated, for those industries whose operations rely on the crude oil, especially the transportation industry, the price of crude oil is one of the major systematic risk factors, which cannot be avoided through diversifying investments. In this study, the results showed that systematic risk of transportation industry was not constant but fluctuating over time. More importantly, the crude oil price risk factor is more influential on the air transportation industry than land or marine transportation industries.

This conclusion was not unique, but has its counterpart. In the study of Mohanty, S. K., & Nandha, M. (2011), three research questions were generated as follows:

Do oil price shocks affect stock returns of the US transportation companies? Are oil price risk exposures same for various subsectors of the US transportation industry (e.g., delivery services, marine transportation, railroads, trucking, and other transportation services)? Do oil price exposures vary across firms and over time? (p. 103).

The answers for these three research questions were all yes. What is worth mentioning, in terms of marine transportation industry, there is a positive correlation between crude oil price and stock returns which may be explained by the law of supply and demand.

Moreover, as Nandha, M., & Brooks, R. (2009) pointed out, in the modern economic environment, which highly depends on crude oil as raw materials of production, the crude oil plays a more and more significant role in the economic development, and more concretely, in the operating profits of corporations, especially those closely related to crude oil. This study mainly examined the role of crude oil from three perspectives as follows: "oil price sensitivity and asymmetry differences among individual countries; oil price sensitivity and asymmetry differences within and between various sub-groupings of countries, e.g. developed versus developing countries; and the pricing of oil risk in the transport returns for various country groups" (p. 394). The results of analyzing collected data showed that the significance of the crude oil price was various among different countries and transportation sectors. More specifically, the results showed negative oil risk premium among "'Developed', 'Europe' and 'G7' groupings" (p. 408), whose economy have been highly developed with a long history of stock market.

Furthermore, according to the study of Transportation Economics & Management Systems, Inc. (Oct. 2008), which aimed at predicting possible oil price range and analyzing potential effects of oil price to the United States' marine freight transportation sector, oil price can impact the costs of this sector seriously because "vessels move comparatively large volumes and are so efficient in terms of crew and capital utilization