New Wildcard for Supply Chains - Fuel Prices
Yikes! an article is well, well overdue…my apologies. It’s been a crazy month plus - new customers, three conferences, and a couple of podcasts and webinars. Whew.
Lots going on but still no excuse to neglect my weekly articles. Thank you for your patience and welcome to the newcomers - you are all appreciated!
So, for this article, I figured I’d write on oil prices and their impact on the supply chain. We’re all feeling the pain of fuel prices these days at the pump and via pass-throughs in the form of price increases of food and other goods and it looks like we’re all going to continue to feel the pain for most, if not the rest of the year.
According to the Energy Information Administration (EIA) latest forecast (March 3), daily spot prices for Brent oil closed at almost $124/b in the first week of March. The EIA expects the Brent price will average $117/b in March, $116/b in 2Q22, and $102/b in the second half of 2022. However, there’s a lot of uncertainty in the EIA’s forecast due to the Russia-Ukraine war and the US domestic economy.
How much longer US retail sales will remain strong remains to be seen especially as inflation, in terms of CPI, rose to 7.9% for the 12 months ending February. According to the US Bureau of Labor Statistics, the 7.9% increase is the largest since January 1982.
Transportation carriers, regardless of mode, are feeling the fuel pain and are raising fuel surcharges as a result.
Last year it seemed the biggest concern for many shippers was receiving inventory on time, regardless of the cost. This year, however, the biggest concern will be on managing the costs.
“The most recent wildcard we are facing currently is the fuel increase driven by the increase in the price of oil globally,” retailer Fossil Group COO Jeff Boyer told analysts on March 9. “We’re not seeing major business impacts from the crisis in Ukraine at this time, as our supply chain doesn’t include routes through the impacted areas. That said, we are watching oil prices, as freight operators can pass fuel surcharges along and there could be some freight expense pressure if the conflict continues and oil prices remain elevated,” Boyer said.
So imagine the fuel surcharge impact on a shipper.
For example, from our parcel/express friends:
And from a couple of our trucking friends:
And don’t forget our ocean vessel and other air carrier friends. They too have fuel surcharges.
So, for a shipper, they can expect to pay fuel surcharges for each mode of transportation they use on top of the rates they are paying and any additional surcharges (for parcels, for example, there are over 100 surcharges a shipper may have to pay in addition to the rate).
As transportation carriers try to pass off some of their fuel costs to shippers, many shippers will try to pass the fuel costs off to their customers.
The days of customers accepting price increases may be coming to an end. Last year, some shippers raised prices more than once and customers accepted the increases. However, inflation, higher fuel prices, and other economic pressures are now weighing on consumers. I bet we’ll see retail sales begin to decline month-to-month and year-over-year soon as consumers tighten their belts and prioritize purchases.
As a result, we may begin to see supply chains return to some sort of ‘normalcy’ - no port congestion and no delivery delays inland.
That’s about it for now. However, if you’re interested in reading a summary of a couple of the conferences I attended, TPM Tech and TPM, here you go:
- Cathy
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I wear a number of hats these days. Besides running a logistics market research firm, catch my weekly articles on air cargo, freight forwarding, and the express markets, as well as a monthly podcast on Air Cargo World, I’m also helping out the Reverse Logistics Association as a research manager and I assist companies with content and other needs. Stay tuned, a new website coming soon!