When Oil prices rise
Across various industries, businesses continue to face challenges such as finding talented workers and meeting inflated commodity prices. One immediate pain point for the logistics industry is rising fuel prices globally. Sudden increases in fuel prices can have a devastating effect on 3PL companies. The higher the fuel cost, the higher the prices passed on to the customer. That’s why companies are trying to find ways to relocate costs, such as reassessing shipping methods. Regardless of the mode of transport a company uses to ship the product, fuel costs will still be a significant part of the overall shipping cost. It was in March when the country saw its first fuel price hike, and since it’s been on the rise. High fuel prices have significantly increased the operating expenses of trucking companies. The transport industry is scrambling to adapt to such rapidly increasing fuel prices. Moreover, trucker strikes due to increased fuel prices are only adding to the woes.
Impact on Logistics Operations
As per data given by the Ministry of Road Transport and Highways, almost 65% of the country’s freight is being transported on trucks. Rising diesel costs have a direct impact on trucking companies, couriers, and packaging material providers. Till now the transporters have been absorbing the cost but the continuous increase in fuel prices have impacted their operational efficiency, leading to drop in fleet utilisation. It forces them to either raise prices or suffer a financial loss, forcing them to shut down their operations if the situation does not improve.
Increase in Product Price
Whether the product travels from supplier to distributor to retailer, its cost is likely to be directly proportionate to fuel prices to complete its journey. This means that the products are going to be sold at higher costs to customers to cover up transportation and fuel costs. Product prices tend to rise by more than 8% if the continuous increase in fuel prices persists. As rising diesel costs cut into trucking margins, many transporters have already increased their service prices owing to the same.
Impact on Use of Mode
Each mode has a distance at which it provides cost-effective mobility and has a different resiliency. Higher prices can have a significant impact on distance and cost function; therefore, companies are beginning to look for different modes of transport to get comparatively more margins, such as rail.
On average trains are almost 4 times more fuel efficient and carry more freight than Trucks and other mode of freight transport.
Summing up
Since more than half of the transportation services is done through trucks, they are not going anywhere soon. Logistics companies are also not new to the rising fuel prices. It changes constantly which keeps the logistics industry on its toes. To manage such fluctuations, companies must focus on improving their operations and finding efficiencies that strengthen the service levels.
By choosing the right strategy, companies can save costs on unnecessary transportation. Companies should start keeping more products on hand, by following a just-in-case strategy to avoid supplier delays and unexpected increase in fuel costs as well. Thanks to recent advancements in technology, a fleet management system with route optimization can help achieve that. Our Fleet management tool is backed by advanced analytics, which reduces waste by allocating vehicles, route plans and deliveries in the most optimal way. It assigns each load / order to a particular vehicle and creates optimal delivery sequence that leads to the shortest possible route for each vehicle leading to cost optimization even when the fuel prices are on the rise. In addition to it, for better visibility we offer Freight bill audit solutions driven by Advanced analytics & RPA. Under optimum situations, it can deliver up to 5% cost savings on the overall Freight expenses.
Please feel free to contact us for any inquiries at marketing@3scsolution.com