Both logistics companies and consumers are vulnerable to rising fuel costs and can struggle to adapt. Logistics is the commercial activity of transporting goods to consumers; it is 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 leading 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
While rising fuel costs affect businesses the most, consumers can also expect surging prices on various products. Rising fuel costs make it difficult to maintain 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; shipping routes become longer without them, increasing fuel costs. As a result, logistics companies apply a fuel surcharge to each load to cover inflation prices.
Rising Fuel Costs and Ocean Travel
Ocean freight is experiencing high costs due to a lack of storage and port space and 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 shipping mode. For example, if rail fuel prices are low, logistics companies can ship intermodal. There’s a lot at stake for other ships when one cargo ship pays for less energy. Other cargo ships would have to pick up the cost. Carriers have also adopted “slow steaming,” reducing speed to save on fuel consumption. This method does slow down shipping times, but it’s worth keeping 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.
One way to combat rising fuel costs is to use intermodal shipping, which moves freight by two or more modes of transportation. Intermodal gives rail access; the benefits are that it is cost-effective, fuel-efficient, reliable, and can ship almost anything. It is the best option when there’s a high volume of shipments, a distance of over 500 miles, and a lenient timeline. This mode also costs less because intermodal is priced at dollars per load instead of cost per mile.