Nearly every member of the logistics industry has felt the implications of evolving and often erratic fluctuations in fuel costs – leading to industry instability. Rapid variation from the fuel status quo, severe drops or rises in costs could result in a profit boost or a surge of competition. Regardless of the outcome, many trucking companies do not understand the direct effect fuel costs have on the logistics industry. In the content below, we explore and demonstrate the implications of fuel costs, helping freight companies aptly prepare for when fuel fluctuates.
The State of the Logistics Industry
Before discussing the implications of fuel cost fluctuation, it is imperative to understand the current state of the logistics industry. As an industry, logistics and transportation are highly competitive in the United States. Select USA states:
By investing in this sector, multinational firms position themselves to better facilitate the flow of goods throughout the world’s largest consumer market. International and domestic companies in this industry benefit from a highly skilled workforce and relatively low costs. United States Business Logistics Costs reached $1.6 trillion in 2018 (8 percent of GDP that year).
The complex logistics and transportation industry play an integral role in national and global markets. Thus, changing fuel costs impact a highly competitive and economically vital industry. From this perspective, fluctuating fuel costs are worth diving into, as both members of the logistics industry and members of the global market.
What Happens When Fuel Prices Rise?
When fuel cost rises, trucking companies have two choices: raise prices or incur losses. Of course, trucking companies do not operate as a single entity. Therefore, fluctuating fuel prices ultimately affect the shipping company and the shipper’s profit source as well. If trucking companies are required to spend more during transportation, shippers will either be charged more – or trucking companies experience a loss in revenue. Shippers, paying more for transportation, will charge the receiver enough to make up for the increased rate.
Furthermore, fluctuations in fuel costs affect all members of the logistics industry, from trucking companies to receivers – ultimately, extending to the general public. How? As fuel prices rise, transporting freight via trucking fleets becomes less economically viable and inefficient relative to market demand. To account for increased expenses, consumers must purchase goods at higher costs. In an already competitive industry, decreased demand also proves detrimental for logistics companies.
When fuel prices rise exorbitantly, product inflation follows. When trucking companies are forced to pay for higher fuel costs, consumers pay for higher product prices.
What Happens When Fuel Prices Drop?
As expected, when fuel prices drop, the opposite occurs. Savings in fuel are ultimately passed along to the consumer. As cost decreases, market demand increases, resulting in greater shipping service demand. Trucking companies tend to flourish during these times as demand increases and cost decreases. In this scenario, companies no longer worry about fuel prices and can relegate efforts into service efficiency and company improvements as a result. Ultimately, lower fuel costs result in decreased transportation prices and decreased product prices.
Can Fuel Logistics Companies Prepare?
While the increase or decrease of fuel prices directly affect the profitability of the logistics industry, volatility and rapid change is perhaps the most challenging aspect of fuel fluctuation. Most trucking companies calculate fuel surcharges based on the previous week’s prices. Unfortunately, the speed upon which fuel prices change often catches companies off-guard – an unavoidable lag between actual prices and surcharge estimates exists. Of course, if fuel costs decrease exponentially, companies experience higher profits. However, fuel costs often rise again, setting companies back.
Regardless of fluctuation patterns in the cost of fuel, trucking companies can and should take steps now to prepare for unavoidable fuel price fluctuations.
Control Fuel Usage
Regardless of the size of the fleet a trucking company is managing, it is wise to carefully control your fuel inventory and usage. Cardlock systems provide extraordinary accountability of fuel usage, tracking every gallon of fuel utilized. Unauthorized fueling is quickly and often identified, fuel theft is prevented, and real operating costs are revealed. Trucking Info insightfully explains the importance of controlled fuel usage:
Today’s fuel control systems also can help drive efficiencies in your operation. For example, many fleets still rely on manual statistical inventory reconciliation, which is inaccurate, inefficient, and expensive. Automated reconciliation programs eliminate hours of manual data collection, calculation, and reporting, and today’s software-based solutions improve the accuracy of the fuel usage data that is collected. Fleets that incorporate a tank gauge and a full-featured reconciliation software into their system significantly increase the depth of inventory data available to them while also streamlining reconciliation procedures. Through instant visibility into fuel volumes and anticipated usage, fleet directors are able to optimize the timing and pricing of fuel deliveries, a cost-cutting strategy that quickly pays off, whether buying millions of gallons of fuel annually or less than 50,000 gallons.
Controlling fuel usage should ultimately lead to reduced fuel consumption. For some trucking companies, this may look like streamlining routes, selecting more environmentally-friendly fuel alternatives, maintaining vehicles, or hiring more efficient drivers.
Evaluate Shipment Packaging
Along with strict observation and documentation of fuel usage, reducing extraneous costs in other areas prepares companies for fuel fluctuation. Shipment packaging is one area to re-evaluate. Can reductions be made in the use of cardboard or in the amount of space occupied?
Automate Processes
Automating manual processes to reduce staffing requirements is another key consideration. Can processes be automated while remaining scalable, controlled, and cost-effective? Will customer satisfaction be improved?
Ship Less Often
If possible, transport bulk shipments less often and avoid small, frequent trips. Highly profitable trips involve multiple carrier stops along a single route.
Efficient Factoring Services for Truckers with Advanced Commercial Capital
At Advanced Commercial Capital, we are poised to help your trucking company thrive. During difficult periods of intense fuel fluctuation, we provide factoring services for truckers, tailoring our solutions to the cash needs of the trucker. Our team understands the unique needs and challenges faced by trucking companies of all sizes, paying for fuel, maintenance, and payroll – while waiting to get paid by customers.
Factoring with Advanced Commercial Capital means you receive immediate cash, without waiting to receive your money. Thus, when you need immediate invoice funding, we provide it. Your rate will never change, and you won’t be responsible to buy back uncollected invoices.
To get in touch, contact us today at 855.465.4655 or via our online contact form! We look forward to walking beside your company and watching it thrive.