The logistics industry has suffered dramatically over the past few years due to supply chain disruptions brought on by the pandemic. As if that wasn’t enough, now we face global fuel shortages and soaring energy prices. Unfortunately, this situation probably isn’t going to get resolved anytime soon. Now businesses worldwide are having trouble making future plans due to how rising fuel prices affect the logistics industry. Let’s take a look at what led to the current state and what we can expect from the future.
What led to the rise in fuel prices?
To better understand where we’re headed, it’s always good to take a look back at how we have arrived at the current situation. This can help us draw more accurate conclusions and make predictions with greater certainty about how current trends will continue to evolve. If you want to keep up with the latest logistics news, you can follow us at My Logistics Magazine. To an outsider, the current state of the logistics industry is totally different from what it was a mere two years ago.
The first significant disruption to hit the logistics industry was the Corona pandemic. However, this didn’t directly lead to an increase in fuel prices. On the contrary, we saw a drop in crude oil prices, yet the shipping costs significantly increased. The growing costs of the logistics sector were caused by a slew of problems related to the pandemic lockdowns. Everyone still remembers the Evergreen cargo ship that got stuck in the Suez Canal.
Although the pandemic is seemingly behind us, some countries still have strict regulations in place. Even today, there are major bottlenecks in Chinese ports which are causing delays in worldwide logistics. The prices of cargo containers have gone up sevenfold. Naturally, some of these price increases were carried over to other parts of the supply chain, including fuel costs.
The war in Ukraine
Unfortunately, no discussion about fuel would be complete without addressing the elephant in the room. On February 24, Russia invaded Ukraine, and at the time of writing, the conflict is still ongoing. Russia’s invasion caused most of the world to enforce sanctions, and even UK Export has issued a statement regarding the Ukraine Crisis. The conflict in Ukraine is one of the main reasons which led to how rising fuel prices affect the logistics industry. Oil and gas prices are at a record high since Russia was one of the largest global suppliers.
Although the sanctions were undoubtedly justified, the world now needs to find efficient alternatives for the fuel they were previously getting from Russia. The UK government has unveiled plans for a £375 million investment to develop future energy technologies. This initiative is intended to lead to the sustainability of the British energy sector without being as reliant on outside energy sources. Unfortunately, those kinds of solutions can be years in the making, so we might need to wait a while before seeing any significant breakthroughs that will influence the logistics industry.
Here’s how rising fuel prices affect the logistics industry:
- Truckload shipping. Most of the shipping and deliveries within the UK are done with freight trucks. Labor shortages combined with record-high fuel prices have led companies to devise new ways to improve driving efficiency and mitigate the rising cost of fuel. Fuel surcharges are generally calculated on the fuel prices of the previous week. This means that any sudden increases in fuel prices could lead to additional expenses.
- Ocean freight shipping. We already mentioned how there was an increase in the cost of cargo containers for freight shipping. Coupled with higher fuel prices, ocean freight shipping suddenly looks much less appealing. Logistics companies have started to look elsewhere for alternate shipping solutions. In the meantime, ocean carriers have begun reducing their average speeds in an effort to spend less fuel. As a result, shipping times are now even longer than they were before; however, companies are able to mitigate some of the fuel costs.
- Air cargo. Unsurprisingly, we have seen more and more logistics companies turn to air cargo as a solution for their shipping needs. Since the drop in air cargo traffic in 2016, domestic air cargo has been rising every year.
- Local transportation. Regardless of the problems which the logistics industry is facing, individuals still need to have their possessions transported. Moving experts from britmove.co.uk report that there hasn’t been any significant slowdown in the moving industry. They have met the rising fuel costs by partially absorbing some of those costs and expanding their offer of available services.
How to protect your logistics company
Although the future is uncertain, we can expect the rising fuel prices to affect the logistics industry in the coming months. This has forced many logistics companies to explore ways of saving money and reassessing their current business model. Here is what you can do to avoid disruptions and unnecessary costs:
- Reduce the number of carriers. You can try to consolidate and attempt to use single sourcing to achieve discounted costs.
- Monitor your efficiency. You can use data and careful analysis to save fuel. This can be especially important for long-distance truck fleet drivers.
- Use nearshoring. Try to reduce the distance you are transporting goods. Look into local sourcing and perhaps set up centralized hubs closer to the end market.
The bottom line
Unfortunately, whenever there is an increase in fuel or energy prices, most branches of industry experience a ripple effect. We have looked into how rising fuel prices affect the logistics industry. Now it’s just a matter of time before those price increases get absorbed by the entire economy. However, any sudden shifts in fuel prices can leave logistics companies facing huge expenses. For this reason, we suggest keeping an eye out for any changes in the cost of fuel that can affect your bottom line. Also, it helps to have a plan to reduce your operating costs and deal with any unforeseen circumstances. It’s always better to be ready for changes than to be caught off guard.