A reality of the supply chain and logistics industry is the interdependency between gas prices, transport logistics, and supply chain operations. Price volatility is part and parcel of the industry; hence while logistics and transportation operators understand this, end customers do not. Gas prices have dramatically increased from a year ago, and everyone feels the impact of the higher prices personally and professionally.
When the cost of supply chain operations rise, companies must adapt to mitigate rising costs. Still, their flexibility is limited, and they must pass these increased costs onto their customers after a certain point. Logistics managers engage different freight carriers to transport goods. When gas prices rise, these carriers charge more for their services, so the shipper (and end customer) also pay more, leading to a domino effect. However, the implications for transport logistics operations are much more profound and far-reaching than an increased price of goods. They include:
The rising fuel costs affect every industry, but the supply chain and logistics market is arguably the most affected. If it costs more for carriers to transport goods, shippers charge more to make up for the increased costs. If shippers are charged more to transport their supplies, the receiver of those supplies is also charged more to make up for those additional costs. The effects of price volatility on the cost of transport logistics continue downstream in the supply chain and affect every stakeholder.
Higher gas prices impact the government, economy, environment, and research & development. These ubiquitous effects drive price inflation in areas such as construction which are closely tied to government contracts. They also result in much higher expenditure on transport logistics and temperature-sensitive products such as defense and healthcare equipment and supplies.
Based on forecasted prices, each mode of transportation has an optimum service area – the area around which that mode of transportation provides cost-effective services. As prices change, so do optimum service areas to a certain extent. Hence, service areas could contract based on the increased cost of transport logistics from high gas prices.
When companies face rising costs, they respond by reducing the frequency of services that cost more. Abrupt cost-driven service contractions are more common if prices affect usage – affected companies will attempt to rescue their bottom line by reducing the frequency of high-cost services.
It’s no secret that the rising gas prices affect transport logistics in more than one way. Companies across the US are scrambling for strategies to reduce costs and minimize the impact of high gas prices on their bottom line. However, companies that partner with top third-party logistics providers will have fewer headaches down the road. Because third-party providers like Northfield take advantage of standing contracts and economies of scale to drive down overall costs, they are better positioned to weather the storm of higher gas prices.
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