Welcome back to the Carrier Issue Series. This week, we are going to be exploring the complexity of fuel prices in the transportation industry. We will dive into the history, relationship between carriers and fuel, the fluctuation of prices and lastly, an innovative solution to saving logistics companies money.
A Brief History of Oil
When the second Industrial Revolution was born in the mid-19th century, our focus was on mass production and the idea of creating a faster, more lucrative society. Factories, airplanes and the invention of the motor car demanded the use of oil. With Henry Ford’s promise to deliver a car anyone could afford, automotives started to boom, which accelerated the dire need for fuel.
This has only skyrocketed over time through wars, advanced automotives and around-the-clock supply and demand. Within a relatively short time frame of our evolution, oil has become one of the necessary variables in keeping the global economy thriving.
However, for the first time in history, the demand for oil has plummeted due to recent events driven from COVID-19. This has brought on a war on prices, leaving oil companies fighting to stay afloat through this unprecedented time.
Relationship Between Carriers and Fuel Prices
Invariably, fuel is the driving factor for carriers when determining freight costs. With the volatile fluctuation of the cost of fuel, this is a plight that impacts carriers beyond the fuel pump. The rise and fall of these prices not only keeps transportation professionals on their toes, but consumers as well. Fuel prices have a trickle effect amongst the economy; it impacts logistics management, intermodals, truck logistics, the amount of products that are being shipped, shipment costs and eventually, it rolls onto the consumer.
High Fuel Prices
High fuel prices results in two options for transportation services:
Carriers can raise their prices to protect the financial well-being of their business. While this initially is emplaced to protect profit, it may result in losing customers or lane opportunities.
Carriers can suffer a financial loss by keeping prices the same or at a lower margin. This may keep business steady, but it may also lead to loss in revenue or a lower salary for the carriers.
Fuel prices are not consistent amongst the global economy. This can lead to a disruption of trade flows and forces logistics companies to pivot accordingly to accommodate that. This adds another influx to the unwavering complexity of the global economy.
Low Fuel Prices
Low fuel prices can signify two things: a positive impact encouraging growth and opportunity or it may indicate a hurting economy (as what we are experiencing now).
The positive impact of low fuel prices is that it offers a major improvement to transportation and the economy as a whole. As carriers save money this is ultimately passed onto customers and eventually, onto the consumers as well. This time also allows carriers to be more competitive. Carriers can onboard new customers or may even win back previous customers that they may have lost when freight rates were too high. With the flexibility of prices, there is more room for logistics operations to grow. This is the golden opportunity for carriers to invest in tools and a transportation management system that will streamline their operations.
On the flip side, low fuel prices may signify an economy that is headed towards a recession. With consumers purchasing less, this leads to less freight to haul, layoffs and loss in revenue.
Fuel is a complex issue and is a central focus for freight. While the variables that drive fuel prices are out of carriers’ control, there are ways to minimize the effects of fuel costs.
Wasting oil is the main cause for concern. An analysis of 11,600 tractor-trailers shipping goods found that only 25% were full truckloads. This means that all too often, shipments involve hauling empty space.
A conventionally 'full' truck is 168 pallet feet when loaded with 72" tall pallets
A truly full truck, however can hold 2 racked pallets in the place of one totaling 98" high- taking advantage of space that is typically wasted.
At FreightWeb, we are about innovation. We have created a state of the art pallet rack system that redefines what it means to have a full truckload. This system has adjustable shelves for each pallet to be spaced out and secure, allowing three pallets to be loaded in the space of one. This optimizes all the areas in the truck which makes it a true full truckload. Loading more pallets into the truck creates less fuel waste, saving carriers time and money.
Alongside the hardware innovation of our pallet racks, we are working with industry experts to design a feature in our Carrier Hub that simplifies reporting related to fuel spend for carriers. Our system will generate analytics showing current fuel spend and how it is affecting overall profitability. There will also be the ability to generate reports related to IFTA taxes that provide a more simple and accurate way to follow government protocol, related to fuel taxes and quarterly filing.