Fuel is a huge component of your supply chain costs which, unfortunately, can fluctuate quite wildly. The logistics industry must deal with price fluctuations often because gas prices and supply chain costs go hand in hand. As history has proven, when prices increase rapidly for fuel, companies that handle supply chain management can lead to long-lasting damages.
Relevancy in the World Today
There are many contributions to prices currently on the rise, for example, the economic downturn from pressing war issues in East Europe. As the Russian-Ukrainian conflict continues, the U.S. took the initiative to sanction Russia’s energy sources. Russia is one of the two highest oil producers in the world, so a conflict such as this creates immense pressure on countries that would face the consequences. The U.S. today is facing record-high gas prices, which negatively affects supply chain costs.
The Domino Effect of Supply Chain Costs
It seems that the cost of gas has impacted not only the refueling of personal cars but also the supply chain industry. The cost of fuel rising forces carriers to also raise their prices otherwise they will take losses. To further explain, a carrier is required to transport freight at a higher rate, so then the shipper will be charged more to offset the difference. In consequence, the receiver will then be asked for more money because the shippers are being charged at a higher rate. As you can tell, there is a domino effect that falls into play in the world of the supply chain as a result of rising gas prices.
The modes of transportation used in the supply chain can be altered because the most cost-effective and economically viable option will be the first choice. Inefficient methods that excessively use fuel and do not deliver enough freight will become less of a choice, leaving a shortage of trucks for some companies. As a result, products themselves or the shipping charges for consumers will become more expensive. The higher gas prices can cause inflation in the economy, which directly impacts the shoppers. Unfortunately, both the supply chain managing businesses and the consumers are negatively affected because of all that is shipped globally today.
Where 3PL Companies Figure in
A constant change in gas prices means that 3PL companies need to re-strategize their supply chain operations so that they do not lose money. Competition generally increases amongst logistics companies because fuel is always a necessity in the logistics industry. You seek the lowest rates but be sure to make enough profit to sustain your business as well while also using a reliable 3PL. Surcharges on fuel depend on the previous week’s fuel prices, so when fuel prices rise exponentially and unexpectedly, companies face heavy losses in earnings.
In such situations, many companies have resorted to holding onto inventory and decreasing the number of non-urgent shipments. The idea is to ship less frequently with larger quantities than a bunch of shipments without the trucks being filled up. Although there is some money to be saved by this strategy, a lack of shipments being sent outgrows the number of empty miles driven by a carrier. These carriers could have made more profits if more stops were presented on a specific route.