Current oil and gas situation has mixed impact on shipper budgets according to Logistics Management survey

By Jeff Berman -- Logistics Management, 2/1/2008

WALTHAM. Mass.—With the price of oil occasionally exceeding the $100 per barrel mark this winter and diesel hovering above $3 per gallon since September, shippers have mixed feelings when it comes to gauging how fuel costs are going to affect their 2008 transportation budgets, according to the findings of a recent Logistics Management reader survey.

For example, according to the 213 logistics and transportation managers who responded to our survey, 33 percent of respondents said their average fuel surcharges are 21 percent or more above their base rates; 21 percent said their charges are at 16–20 percent above; while 15 percent reported charges coming in at 11–15 percent; and another 15 percent reported a 6–10 percent charge.

Taking this a step further, more than a combined 50 percent of respondents said they planned to raise their transportation budgets up to 10 percent this year just to cover fuel costs, with 27 percent saying they would raise rates from 0–5 percent.

According to James Haughey, chief economist for Reed Construction Data, with this type of potential increase in transportation budgets looming, the actual financial pinch may not be quite as bad as anticipated.

“With a good amount of shippers raising their freight budget 6–7 percent to cover higher than budgeted fuel prices, their total cost increase will be in the neighborhood of one percent, which is unpleasant but manageable,” said Haughey.

However, due to the economics driving the increases in global oil prices, shippers really don’t have any choice in the matter, said Dustin Smith, North American transportation manager for International Paint LLC in Houston.

“Shippers will have to pay to get their goods to market even as the price of fuel increases,” said Smith. “The fuel surcharge (FSC) is not necessarily an evil thing. Shippers need to [partner] with transportation and logistics services companies and realize that without an FSC these companies would not likely be able to stay in business…but shippers need to do their homework to determine what the actual costs are and what percent they should pay to carriers.”

Looking to the future, survey respondents were almost evenly split on whether or not they would be forced to alter their shipping strategies if gas and oil prices continue to spike in the coming months: 47 percent said they would change things up, and 53 percent said they would not.

Attend the 2008 Logistics Management Carrier Rate Outlook webcast, available on-demand, to learn more about the forecast for shippers this year.