Prices of petroleum products had been steadily rising over the last few months without any sign of slowing down in the near future. Different factors from geopolitical unrest in some regions of the world and unstable supplies are some of the reasons that drove up a major jump in fuel prices recently. Here we have discuss about the Impact of rising oil prices on the Logistics Industry
So how important is fuel for logistics operators and how does it affect the prices of services that they impose on their customers? Rising oil prices add a big burden to carriers all around the world. They are faced with the difficult decision to either operate at a loss or pass on the cost of rising fuel to their customers, either way, is not a pleasant business decision for anyone involved. But, this is something that carriers have to do or else face possible bigger financial issues down the road. With the logistics industry being largely dependent on fuel to operate, what would be the long-term effect of this problem that everyone is facing globally?
Increased cost to consumers
The increased cost of fuel products forced logistics companies to increase their delivery rates to cover fuel costs. As a business operating on service fees paid by its customers and with a large chunk of operating costs going to fuel, carriers are very reliant on the fees that they impose to continue operating. As of this writing, price monitoring sources reported a more than 50% increase in the price of fuel compared to the same time a year ago. This added burden to costs prompted logistics operators and business owners to increase the cost of their goods and services to cope.
To keep supplies of goods moving across the country, many logistics companies are resorting to other solutions such as adjusting their movement schedule to try and minimize the effect of high oil prices.
Rising oil products cause a domino effect on the whole consumer chain. With prices of oil rising, this will force freight companies to increase the cost of their services. As mentioned earlier, this will also prompt business owners to increase the price of their goods to cover the higher cost that they paid to move their products. Ultimately, it will be the consumer who will absorb the majority of the increase in prices.
If no intervention will be done to cushion the effects of rising oil prices on the consumers, we can expect that prices of basic commodities will also continue to rise.
As more logistics companies are suffering from losses on the increased oil prices, many are forced to make hard decisions of pausing, limiting, or totally ceasing operations. This will result in lesser competition in the logistics industry.
If one will look at the scenario, it can be a good thing but too much imbalance in the supply of freight service providers will also cause problems to the already volatile economy. As demands for basic goods are still stable, lesser movement will cause shortages in some areas that are no longer serviced as frequently by carriers.
Some logistics companies are exploring the possibility of using new technology such as alternative fuel to minimize the impact of the rising price of oil on their operations. However, these technologies are still new and not universally available. For small carriers, investing in new technologies are also a big challenge considering the big upfront cost that they have to cover.
One of the proven solutions that most logistics companies can implement in worst-case scenarios is service reduction. If it is no longer viable to serve long-distance customers, some logistics companies will be forced to let go of these clients either temporarily or permanently depending on the severity of the problems faced.
This means that carriers will have to identify viable service areas that are ideally near the headquarters or distribution centers that they maintain. Doing this optimizes the expenses incurred in moving goods in a specific region while continually serving customers. This will make it possible to still continue operating using the least resources possible. Of course, companies with multiple distribution centers will definitely have more advantages as far as this strategy is concerned. This measure is a last resort for most companies and like all businesses, carriers will also have to consider the viability and survival of their businesses in making major decisions such as this one.
What the future holds
No one is definitely sure what the future holds for the prices of fuel. Different factors are affecting the volatility of fuel prices in the world market and economists are unsure if the rise of prices is going down anytime soon. As more people are dependent on the delivery of goods, it does not seem likely that the logistics industry is going anywhere. But, if uncontrolled, the rising oil prices will relatively affect the price that we pay for all the things that we buy.