In the 1990s and early 2000s, the freight industry profited from low fuel costs and widespread availability, but now that fuel costs are rising, the industry may be in for a few bumps in the road.
In just the last decade, the cost of fuel has rapidly increased, which has caused devastating effects on freight management companies. That's why companies are finding other ways to save money in other areas like billing through FPO solutions. These solutions can help your company combat increased company expenses due to rising fuel costs. Let's take a look at four implications of rising fuel costs to the freight transportation industry and what it says about the industry's future.
1. Increased Costs to Transport Freight
When the price of fuel goes up, carriers are required to increase their prices or take some losses. The rising costs of fuel affect the whole industry in that if it costs more for the freight carrier to transport goods, the shipper is charged more to transport those goods to make up for the increased costs. Also, if the shipper is charged more to transport, the receiver is consequently charged more to make up for additional costs.
2. Product Inflation
The cost of fuel impacts so much more than just the transportation industry, such as the economy, politics, the environment, globalization, and technological development. These effects typically result in higher costs for shipping products that are time-sensitive or that need refrigeration.
3. Changes in Service Areas
When fuel prices are set at a certain level, each mode has an optimum service area – the distance at which it provides cost-effective mobility. However, since each mode has a different resiliency, increased prices can have a significant impact on the cost or distance function. That means that service areas could change based on the increased cost of fuel.
4. Usage Level
As we've seen above, rising fuel costs affect many industries and even more companies. When companies are faced with rising costs, they generally cut back on the frequency of their services. If the price is affecting the usage level, then companies affected will try to save money wherever they can, hence the reduction in services.
The Impact on the Future of The Industry
More than 80 percent of cities in America get all of their goods solely by truck, so while the trucking industry isn't going anywhere any time soon, costs could continue to rise. The increasing cost of freight transportation has led some companies to start keeping more products on hand, which can reduce the amount of necessary transportation. Other responses include making changes from lean inventory strategies to lean inventory-transport hybrid strategies, going from offshoring to near-shoring when it comes to sourcing strategies (to decrease the number of miles traveled), and moving from product and package designs for creation and marketability to designs that integrate "shipability" concerns.
The rising costs of fuel will most certainly affect the freight transportation industry in more than one way. However, if you prepare yourself ahead of time for things to come, you'll have fewer headaches down the road.
So what can you do to combat rising fuel costs and save your company time and money?
There are several things you can do to save money when costs go up, like using one of the above solutions that other companies are trying. However, one of the best ways to save money is to use back-office services and freight process outsourcing through a company like DDC FPO.
We offer freight billing and auditing solutions that effectively save companies money. Many clients see cost savings as much as 50%. Learn more about our freight billing solutions and start cutting down on overall costs today.