In the late 1900s, logistics companies were able to benefit from the low cost and high supply of fuel. As more drivers have hit the road, an increase in the demand for fuel has put pressure on the supply of fuel. When supply is in high demand, the price of fuel will increase. In turn, rising fuel prices can have a domino effect on logistics all around the world.
How Do Fuel Prices Affect Logistics?
Increase In Transportation Costs
Higher fuel costs can significantly hinder a logistics company’s bottom line. Just like any other business, logistics companies are in the market to make a profit. They also have salaries to pay and loans or debts to pay off. When fuel price increases, logistics companies have to increase the cost of transportation to offset costs. Unfortunately, it is the end consumer that feels the effects of the fuel price increases.
Increase In Cost of Products
Due to transportation costs increasing, this will affect the cost of producing a product as well. Manufacturers and production companies must factor the transportation costs into the cost of making the products they offer. As a result, an increase in the cost of transporting raw materials or other parts to make a product will force the business to increase consumer prices.
Limited Supply Areas
When fuel costs rise, some trucking companies are then limited to areas in which they can be of service. As fuel has become scarce and prices have risen, some logistics companies have had to cut off areas or limit the distances they can transport goods. This is because it is not viable for them to travel long distances for little to no profit.
This has also caused the price of transporting goods to be extremely high for companies that have no choice but to pay. Higher prices for transporting goods are linked to the increase in the cost of products as suppliers are forced to increase their prices.
It pays for logistics companies to work smarter not harder. Logistics companies have to determine loads and distances that are viable for them in order to deliver and still make money. Logistics companies cannot afford to transport half-full trailers with goods and materials. Time delays are common while logistic companies are looking to find other goods to be added to the load before it goes out.
The people that are hurt most as a result of rising fuel prices are the end consumers. Yes, it does have an effect on logistics companies and suppliers. However, their price increases are mainly going to affect consumers because they are the ones who end up paying the price for these increases. Fuel price changes have to be predicted and strategically managed by businesses so that they can make money and consumers can still afford to place orders.
Additional Reading: Gasoline and Diesel Fuel Update – U.S. Energy Information Administration (EIA)
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