Brace Yourself—Your Freight Budgets Are Going To Be Sacked!

Now that the Super Bowl is over, it’s back to business as usual – that is, back to managing freight costs in today’s challenging environment.

If you’ve been reading the blogs, you know that we are predicting that shippers will be paying more to move freight. But the real question isn’t if rates are going up, it’s how much will they be going up?

Recently I attended a meeting in Washington DC with the leaders of numerous industry associations. We discussed a sobering fact: If you built your freight budgets in September, the DOE number for projected fuel costs in 2011 was $2.96 per gallon; in November this number was revised to $3.14 per gallon; in January it was revised to $3.40 per gallon; and as of January 31, 2011 the price of fuel according to the DOE was $3.43 per gallon. With diesel historically at its lowest in the first quarter of each year, shippers can expect to be paying much more than $3.40 per gallon for diesel throughout the 2011.

We discussed what number shippers should be using to project fuel surcharges for 2011. One leader noted that a very large shipper is using $4.00 per gallon as the projected fuel cost for 2011. Who knows if that number is correct, but with the problems in Egypt and the potential problems moving oil through the Suez Canal, even $4.00 per gallon may be low.

We are not here to debate the cost of fuel. But it is important to point out that with just fuel alone, shippers could be paying as much as 15% to 20% more for freight than they did in 2010 (depending on their fuel surcharge calculation). And 15% to 20% is before we factor in the inevitable rate increases that the carriers will be taking to reflect the fact that it costs a lot more to operate a truck in 2011 (and beyond) than it did in prior years. As mentioned in my previous blog, few if any shippers have freight budgets which reflect increases of this magnitude. But it is entirely likely that your freight costs in 2011 could very well increase by as much as 20% to 25%!

Because the predicted increase poses a very real threat, over the past couple of weeks we have facilitated meetings with the executive teams of our clients and prospects that are concerned about the issue of rising freight costs. Our role is to provide support to the logistics professionals so they may accurately demonstrate what the transportation environment really looks like. We highlight and substantiate the current issues, facilitate the discussion and make sure that everyone’s voice is heard.

At one of these meetings, the CEO, senior executives and the transportation people came together for a discussion that resulted in ideas yielding significant savings. As members of a team they needed to work together to address and strategize around these issues. The CEO told me it was the best two hours his company had spent in several years. Guess what? You can do the same thing within your company.

Instead of surprising your company executives down the road with heart stopping freight numbers, get out in front of this issue now!

1. For starters, take a copy of this blog and circulate it among the senior executives within your organization. If they don’t believe you, or have questions, have them give me a call.

2. Organize a meeting with your executives and transportation professionals to get it all out on the table. Address the issues that are threatening your supply chain over the next 90 days; and those threatening your supply chain over the next 12 months.

3. Take action. Strategize and develop a plan to mitigate the impact of these issues. Determine and allocate what items can be managed with the resources your organization has access to internally, and determine what issues need to be outsourced to an experienced partner.

Remember…even the Lone Ranger had Tonto. You could be the best logistics professional in the world and be doing a marvelous job in managing your company’s transportation budget - and you could still see your transportation costs go through the roof for reasons that are entirely beyond your control. Work with your executives, colleagues and partners to plan now, before it is too late.

TranzAct Technologies, Inc.

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