Shippers Make Changes To Counter Higher Fuel Prices

August 25, 2008

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Increasing fuel prices have inspired – perhaps compelled – many companies to restructure their operations in order to diminish erosion of their profit margins, according to eyefortransport’s “The Impact of High Fuel Prices on Logistics” Report 2008.

Over 800 shippers, 3PLs and carriers were asked their views on how high fuel prices are realigning their transportation and logistics strategies and networks and how are they tackling the challenges of higher fuel bills.

More than half of the respondents said that inventory costs are being pushed closer to the final destination. For years, logistics executives have focussed on minimizing inventory costs by moving goods through the supply chain as quickly as possible.

Now rising fuel costs are making some companies think about keeping more inventory on hand, but not all are ready to take that step. Over 40% said that larger loads are being shipped and buffer stocks increased. Load integration and multi-modality are key issues for that 40% of respondents.

Companies are using more fuel efficient modes such as rail and water which allows them to ship larger loads and reduce congestion. Short sea shipping and moving freight along coasts and inland waterways is proving to be a very strong alternative for the logistics industry.

More than one-third of the respondents said that companies have developed more flexible manufacturing strategies to help alleviate the impact of higher fuel costs.

Near shoring is helping logistics executives to reduce inventory, optimize inventory and avoid congestion. Companies are looking for the next low-cost countries which close in distance will allow them to boost their profits by avoiding the fuel price dilemma. Of course, the geographic, cultural, labour, economic and political variables have become key for making supply chains more flexible.

There is a difference of opinion on whether to centralize warehousing and distribution activities (27%) – which reduces capital costs, or to increase the number of regional facilities in order to reduce warehouse-to-market transportation costs.

A number of respondents said that they evaluate alternative transport options when lead-time is not an issue, i.e. road / rail / sea / multi-modal transportation instead of airfreight, while others have expanded their use of 3PLs / 4PLs, particularly those with shared-user facilities and vehicle fleets.

Other actions taken include route optimization and improved fleet utilisation; reduced delivery frequencies; continuous redesign of logistics / supply chain / distribution networks; reduction of production capacities; delaying of projects; and increased local sourcing.

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