How Do Rising Fuel Costs Affect Logistics?

Both logistics companies and consumers are vulnerable to rising fuel costs and can struggle to adapt. Logistics is defined as the commercial activity of transporting goods to consumers; it is the process of how resources are obtained, stored, and delivered.
There is a relationship between logistics and consumers – a rise in fuel costs causes carriers to raise their prices, and this increase trickles down to consumers.

Rise In Diesel Prices

Diesel fuels some of the main freight transportation methods, such as trucks, rail, and container ships. Diesel prices are currently at $5.73 a gallon, up 75% from last year. As fuel costs rise, carriers calculate what to charge and how much it costs to move freight. To protect against unpredictable rising fuel costs, carriers add a surcharge to shipments, which adjusts linehaul rates for the changes in diesel fuel prices.

Rising Fuel Costs and Truckers

Rising fuel costs make it difficult to stay within profit margins, affecting truckers’ pay. This, combined with consumers’ demand for expedited shipping, causes labor shortages in trucking companies. Low wages also make it harder to find new truckers; without them, shipping routes become longer, further increasing fuel costs. As a result, logistics companies apply a fuel surcharge to each load to cover inflation prices. While rising fuel costs affect businesses the most, consumers can expect surging prices on various products as well.

Rising Fuel Costs and Ocean Travel

Ocean freight is experiencing high costs due to a lack of storage and port space, as well as a rise in fuel costs. Ocean carriers are implementing surcharges like trucking companies because fuel makes up most of the overall cost. The increases in freight are passed down to the consumer as they find a more economically-efficient mode of shipping. For example, if the cost of rail fuel is low, logistics companies can ship intermodal. There’s a lot at stake for other ships when one cargo ship pays for less fuel. Other cargo ships would have to pick up the cost. Carriers have also adopted a method called “slow steaming,” reducing speed to save on fuel consumption. This method does slow down shipping times, but it’s worth saving on fuel costs.

Rising Fuel Costs and Railway Shipping

While railcars take up a lot of fuel, it is one of the more cost-efficient modes of freight shipping. Trains are four times more energy efficient than trucks because they can transport tons of product on a single gallon of diesel. For example, one freight train can haul 200 cars or more, carrying 100 tons of freight; it would take 800 trucks to maintain the same weight. Railway trains also have higher horsepower, while trucks put a cap on speed to reduce the cost of fuel.

Intermodal Shipping

One way to combat rising fuel costs is to use intermodal shipping, which is moving freight by two or more modes of transportation. It is the best option when there’s a high volume of shipments, has a distance of over 500 miles, and a lenient timeline. Intermodal gives access to rail, the benefits being that it is cost effective, fuel efficient, reliable, and can ship just about anything. This mode also costs less because intermodal is priced at dollars per load instead of cost per mile.