Since the conflict in Iran began, the rise in fuel prices alone has increased LTL freight costs by approximately 20% and truckload costs by approximately 25% to 30%. And that is before the rate increases that carriers are looking for.
To provide more context we put together a Managing Fuel Surcharge Exposure Executive Briefing, and if you're a shipper, just send us an email to receive a copy.
Think about how much impact that could be. If your company spends $10 million a year on transportation, we’re talking millions of dollars. Whether you have felt all of it yet or not, there is a problem, and hoping fuel prices come back down is not much of a strategy.
Several months ago, I raised the possibility that diesel could reach $6 a gallon. Today it is above $6.50, and with continued disruption in the Middle East and uncertainty surrounding the Strait of Hormuz, I would not build my transportation budget around the assumption that this problem is going away anytime soon.
I know some of you are probably thinking, “Mike, believe me, we are taking this seriously.” Although that might be the case, here is the question I would ask: What are you actually doing about it?
There is an important distinction between knowing freight costs are going up and having a plan to do something about them.
The real issue is not simply the price of diesel, but how your company can deal with it. Do you know how your carrier fuel surcharge programs are structured? Do you know what another 50 cents or $1.00 in diesel does to your annual freight spend? Are there shipment patterns, mode decisions, carrier agreements or operating practices that are making the problem worse?
Most importantly, do you know which parts of this problem you can actually control?
While you cannot control diesel prices, geopolitical events or the next disruption, you can control how you buy transportation, how your carrier agreements are structured, how freight moves through your network, and whether your company has a plan for what happens next.
That is why we put together our Managing Fuel Surcharge Exposure Executive Briefing.
It is not another report telling you fuel is expensive. You already know that. The briefing looks at four practical areas leadership teams should be examining right now: fuel surcharge contract structure, operational opportunities, scenario modeling and transportation planning. Those are the areas where companies can move from simply absorbing higher costs to actually managing them.
And there is another reason I think you should read it. The briefing points out that the biggest savings opportunities often are not simply in negotiating another freight rate. They can be hiding in shipment patterns, mode decisions, consolidation opportunities and operating practices that were already costing money before fuel went through the roof.
So, if you are responsible for a meaningful freight budget, I would encourage you to get a copy. Not because reading an Executive Briefing solves the problem, but because it may help you identify a problem you did not realize you had.
And if something in it causes you to say, “We probably ought to take a closer look at this,” then call us. We will spend some time looking at what you are seeing, how your freight program is structured and where there may be opportunities. If we do not see anything meaningful, we will tell you that. But if we do, that conversation could have a very meaningful impact on your freight costs and your profitability.
If you would like a copy of the Executive Briefing, send us an email and simply say “FUEL.” We will send it to you.
The next step is figuring out whether your company will be paying more for transportation, or whether there are things you can actually do about it.
Let’s Connect at CSCMP EDGE
On October 5, I will be speaking with Professor Yossi Sheffi about scenario planning at CSCMP EDGE in Nashville. Scenario planning is not about predicting the future. It is about thinking through what you are going to do before the future shows up at your doorstep.
If you are attending EDGE, and would like to connect there, schedule a time to meet.
Here's how to get in touch:
☎️ Give us a call at 630-833-0890
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