When you look at your shipping and logistics budget for the year, what impact does changing fuel costs play?
The answer may depend on your total shipping costs for the year and the type of logistics support you depend on from outside partners and carriers. For logistics industry leaders, tracking the fluctuating cost of fuel worldwide and how that impacts U.S. shipping rates, is essential.
Fluctuating Fuel Prices Impact U.S. Logistics Industry
Price fluctuation has a constantly evolving effect on the U.S. logistics industry. That’s because rapid increases in fuel prices can have a delayed impact on freight management companies, as well as the carriers, shippers, and the consumers they serve. Rising fuel costs increase the cost of freight transportation, which affects shipping companies and consumer shipping rates. In fact, higher fuel costs impact prices of goods and services and inflation rates as well.
Regular retail gasoline prices in the U.S. averaged $2.85 per gallon on March 29, 2021. U.S. gas prices have generally increased since reaching a multi-year low of $1.77/gal in late April 2020. The increases are due primarily to higher crude oil prices and wholesale gasoline margins. Before the streak broke in March, U.S. gas prices had increased for 17 consecutive weeks, the longest streak since 1994.
Generally, most shipping carriers understand that changing fuel costs are a permanent part of the logistics industry. These companies generate fuel surcharges based on the fuel prices of the previous week. When fuel costs rise rapidly, there is a lag between the price of fuel and the fuel surcharge rate. This can impact both carriers and shippers when quoted transportation costs change.
According to Total Reliance Logistics CEO Denise Magalotti, “Everyone wants to have the lowest rates to minimize the impact on their customers, but a fluctuating market can make things difficult. At Total Reliance Logistics, communication is one of our core values. We’re committed to transparency and clear communications to our customers on both cost increases and savings.”
Why Are Fuel Costs Rising?
According to the U.S. Energy Information Association, U.S. gas prices are driven by four components: crude oil prices, refining costs, retail distribution, and marketing costs, and taxes. We are currently seeing gasoline supplies tightening and demand increasing modestly, combined with a global rise in crude prices. The sale of gas in the U.S. in 2021 exceeded 2020 levels for this first time in March, after a year of lagging consumer demand due to COVID-19 shutdowns.
Consumers should expect to see additional increases, due in part to a 57% decrease in production rates. In addition, U.S. policy impacts gas prices. President Biden’s suspension of new oil and gas leasing and drilling permits has impacted prices. All of this points to the likelihood that U.S. oil production will continue the decline it began in late 2020, and prices will continue to rise.