Are we ready to sacrifice...yet? Why increasing fuel surcharges should cause us to modify our behaviors.
By Wayne Bourne -- Logistics Management, 7/1/2008
The readers of this magazine are very aware that fuel prices are behaving rather poorly this past 18 months or so. As logisticians we have seen the price per barrel almost double since mid-2007. You are all familiar with the early June numbers: over $133 a barrel, more than $4.50 per gallon for diesel, and even the price of gas for our automobiles has gone over the $4 per gallon mark.
Is there any end in sight? Not really. Predictions by industry speculators are pegging oil somewhere around $165 to $185 a barrel by the end of this year. That does sound a bit harsh, and perhaps somewhat unlikely; however, I recall not that long ago I was crunching budget numbers during my last full year in the corporate world. My fiscal 2005 fuel surcharge projections called for a basis of $55 for a barrel of oil. I was told that I was insane to project that much, and was encouraged to temper my forecasts in an effort to reduce budget variance to the previous year. I didn’t give in; and I still missed budget by a mile. Fuel had topped $64 by year’s end.
There was no pleasure in being almost right and I can’t imagine what those forecasts look like today. Carriers and shippers alike have felt the immediate impact of fuel in their daily operations. They have also felt the impact in the increased prices of tires and other petroleum based products.
As consumers we have felt the impact in our groceries, our airline tickets, and home heating costst in parts of the Northeast are significantly higher and continue to climb. I recently read that amusement park rides are up $.50 to a $1.00 per ride to offset higher fuel and that even the cost of popcorn at the theaters is increasing.
At what point do we begin to take this seriously? In late May, Ford Motor announced that sales of their Trucks and SUV’s were down significantly. That was just a few weeks ago.
Other than the few examples of fuel-cost-creep mentioned above, where else has there been a pronounced pass through for rising fuel costs? Has it hit the price of a suit yet, or a plasma TV, or a new leather sofa? To what extent have retailers passed along a retail price adjustment for their products, rather than absorbing the ever increasing fuel surcharges associated with the inbound and subsequent outbound freight to service their stores? Simply accommodating the impact of rising fuel in one’s annual budget and succeeding quarterly forecasts is not a short term solution. We need to make individual and collective sacrifices. We need to modify our behaviors, and soon.
A year ago I was having breakfast in Amsterdam and I watched out the window as thousands of people were coming into the city to work and shop--on their bicycles. The only cars to speak of were taxis, (with tourists in them). Thousands and thousands of bikes, and it top it off, it was raining like crazy. They didn’t care that their hair and clothes were wet, because everyone was wet, and they would soon dry.
Fuel in the Netherlands, like all over Europe, was over $6 an equivalent gallon back then. They treated fuel with a great deal more respect than we tend to do here. Cab drivers shut their engines off at stop lights and restarted them to save a bit here and there. It has been a long time that they have been serious about fuel conservation. Why aren’t we?
I was asked some time ago how we could counter the effects of rising fuel, and I said the only way to reduce fuel expense is to use less. Easier said than done right? Well it depends, in large part, on how revolutionary you dare to become.
Will shippers expand the on-time performance metrics therefore allowing a greater amount of time for a truck to make a delivery thus saving fuel by driving at lower speeds? How about restricting certain deliveries to full truckload only, by waiting an extra day or so to build larger loads through the POS system? Will we make a more concerted effort to assure that as many outbound loads have a backhaul load to fully use fuel?
How about something a bit more radical? On those loads that are not full truckloads, why not share your space with another retailer sharing the same city pairs. I would challenge McDonalds to haul Burger King Supplies on their trucks—there are very few corners that don’t have one of each. Will you ever see Best Buy and Circuit City riding on the same truck?
Let the advertising, marketing and store operations departments duke it out competitively and let logistics save as much fuel as it can without parochial inhibitors. Is this too farfetched? Perhaps. But the point was only meant to be illustrative.
Or was it? We have to slow the meter on fuel, we have to stop abusing the supply side, we need to start making the same kind of sacrifices that other countries make. If we can car pool in the neighborhoods, we can truck pool as well. It’s about time.
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