The volatile fluctuations of energy prices in the market have a consistently changing influence on the logistics industry. When we witness a rapid surge in fuel price it can have a detrimental effect on freight management corporations. Whereas, an abrupt drop can result in a series of actions such as a temporary rise in profit; leading to an increase in competition to offer consumers the lowest cost of fuel.
In simple terms, high gas prices mean that each individual has to pay more at the gas station which leaves lesser for us to spend on other necessities. However, these volatile gas prices affect more than just local citizens but the broader economy as well.
When oil prices rise…
As the cost of fuel soars the charts, companies are forced to raise costs or go through a loss. In doing so, the price of fuel does not only impact the logistics company but consecutively the shipper and the source of profit for the shipper as well. Many like to call it an apparent domino effect. When it costs a high price for the freight carrier to transport the asset, the shipper is charged accordingly. Additionally, if the transporter is charged heavily for delivering the shipment, the recipient will be charged more in the final payment to compensate for the additional costs. The end result is that when fuel costs are high, products are sold for a bigger price tag to round up the expenses of transportation and delivery.
Here are a few prospect impacts of high gas prices on international logistics.
Retailers must pass on shipping costs to consumers
When fuel prices rise, it leaves less for people to spend on luxurious items or non-essential goods. Furthermore, shoppers would be forced to drive less to purchase groceries from their local store or they’d only commute outside when it’s necessary – opting to take the bus instead of spending on fuel.
Also, with the gas prices rising, it coerces people to do online shopping instead of leaving the house to buy goods. It’s been noticed that as gas prices grow, there is an intense increase in the search volume for online shopping. This causes retailers to forward the increased shipping costs to customers due to the rise in gas prices. In simple terms, any product that is shipped or delivered directly to your home can potentially cost more depending on the fuel prices.
Network configuration
The high energy prices can potentially prompt a change in the configuration of transportation networks in regards to hubs, gateways, routing, and corridors. For example, a local corridor can go through shifts in the linkages with local load centers to reduce road use and take full advantage of rail use. Similarly, an aircraft can choose to abort cost-effective routes in exchange for direct or point-to-point services.
Auto industry
The rise in gasoline prices puts the automobile industry under constant pressure to deliver consumers with fuel-efficient cars. Car manufacturers globally are looking to produce cars that consume less oil but pack the same features as a top-tier one. Currently, more and more clients have opted to purchase hybrid models which are more compact in size and fuel-efficient.
Supply chain propagation
A supply chain is a network of inputs and outputs involved in distributing products to the final buyer. The rise in fuel prices impacts a series of changes in the cost pattern within a supply chain. Everything from the procurement, manufacturing, and distribution expenditures are all affected to different extents. For instance, when the density of the packaging of parts is increased to ensure better asset transportation it may lead to a delay in the assembly following the next phases in the supply chain. Potentially, some of these expenses can be covered in reduced profit margins and higher efficiencies, but they ultimately wind up broadcasted in higher consumer costs. Since oil is a prominent element of supply chain costs, the volatile nature of its price can in turn make offshoring or on-shoring production highly attention-grabbing.
Therefore, supply chains are required to strategize accordingly so the business isn’t affected during a price spike. One way is to split the supply chain process into sections so that any disruptions or delays can be contained within one section. When you segment the supply chain, it makes it easier to source products from different suppliers depending on the destination of the goods. Similarly, corporations can dispatch multiple items at once so that production and distribution stages can continue while executives figure out how to tackle global supply chain management after price climb. Going into 2020, supply chains are embracing greener alternatives to help global supply chain management to reduce costs. They’re experimenting with substitute fuel for delivery vehicles to keep costs down while also giving the company sufficient exposure through digital marketing services. Another alternative is to utilize compact and efficient packaging made from recycled supplies to decrease shipping costs.
Wrapping Up
As we go into 2020, the depleting state of our planet has brought upon scarcity of natural resources such as crude oil, coal, and natural gas. Depending on the rate of consumption the energy prices can be expected to spike since heavy equipment is required to extract resources and manufacture products.
The surge in energy prices can dramatically affect the locational routes taken by consumers, aircraft, and other transportation vehicles. Especially, since most industries majorly benefit from low transport costs but the spike in prices can put them at a disadvantage and, in turn, pass those costs forward to consumers. Energy is a primary component of all input costs in a selection of manufacturing sectors, which means any fluctuations in the price patterns will have a direct impact.
