How are rising fuel prices affecting logistics?

The fuel markets encounter changes and fluctuations on a regular basis, which are caused by several factors which we examine below.

The logistics industry is certainly no stranger to the changeable subject of fuel pricing and the volatile nature of this sought-after commodity. But what impact does the inconsistent and high variability of fuel pricing have on the UK logistics industry? We explore rising fuel prices and the affect it has on logistics.

Fuel prices and the supply chain

The supply chain has an undeniably close relationship to the fuel industry, with the supply chain of virtually every product and/or consumer goods being impacted by fuel. Whether it is travelling from a supplier to a distributor then to a retailer, its cost is likely to be directly linked to the total cost of fuel to complete its journey.

The direct impact of rising fuel pricing and the logistics is unquestionable, with transportation being a significant part of a business’ logistic outlay. This share only increases as fuel costs rise.

Fuel pricing: The current landscape

In 2016, it was reported by the Office of National Statistics (ONS), that the cost of diesel had dropped below £1 a litre at supermarket forecourts for the first time since 2009. After continuing to decline at the end of 2018, fuel prices began to creep back up.

Data from the Agriculture and Horticulture Development Board (AHDB) shows that the average price of crude oil stood at $41.47/barrel for 2020 which was a decrease of 35.2% compared with 2019. However, analysts are predicting a dramatic fuel price hike as the price of a barrel of oil is set to soar from $64 to $80.

Why do fuel prices fluctuate?  

Oil is a highly sought-after commodity and fluctuations in fuel price are common. These fluctuations are caused by several contributory factors, including:

•        The world price of crude oil
•        International exchange rates
•        Supply and demand around the globe
•        Natural disasters, war and political unrest/instability.

Rising fuel prices: The challenges

Rising fuel prices present a host of challenges for logistics companies:

•          Rising costs typically force logistics companies to either raise prices or suffer financial losses.
•          An increase in carrier costs will eventually lead to an increase to the consumer, which could cause customer dissatisfaction and eventual loss.
•          Higher prices can create a ripple effect throughout the economy – when the costs of key consumer goods increase, higher energy costs end up in government inflation data, which has the potential to inform interest rates.

How can logistics companies safeguard themselves?

Fluctuating fuel prices is certainly not an alien concept to the logistics industry and is a familiar situation that supply chain companies are aware of. Many supply chains have adopted strategies to help safeguard themselves against the impact of rising fuel prices with a focus on reducing transportation costs: 

Consolidation - By reducing carrier numbers and consolidating supply chain needs through single sourcing, there is scope to achieve a discounted cost. Fewer carriers mean more volume of business and potential for a discounted package for transport services.

Making efficiencies - To help tackle the ever-changing fuel price fluctuations, logistics companies are forced to think of ways to constantly improve their operations and make vital efficiencies that enhance service levels. For those that want to make fewer risks, they may decide to lock in their fuel price risk exposure to help guarantee their budget numbers for the year.

Nearshoring - To attempt to reduce the length of transportation for products in the supply chain, many industries adopt the concept of nearshoring. This involves sourcing products and raw materials from locations that are near the end-market in an attempt to reduce transportation costs.

Overcome your fuel cost challenges today  

If you are a business or enterprise and are looking to overcome key logistics challenges and make business-critical efficiencies through EPOD upgrades you should consider our PODStar solution. Amongst a wide range of business benefits, the system yields tangible results in terms of fuel reduction and improved carbon footprint.