What Low Gas Prices Mean for 3PL and Supply Chain Managers

January ushered in a new year, and also a historic low in the price of crude oil—falling well below $60 a barrel when it was over $100 a barrel as recently as last June. While opinions vary on whether this trend is temporary, or whether we can expect to enjoy low gas prices for a long time to come, the fact is that the price of gas is dropping significantly, and doesn’t seem to have stopped its free-fall. This is good news for the average consumer at the gas pump. However, low prices will benefit some shipping and transportation companies more than others, and a few companies may experience negative impacts. The Truth about Fuel Surcharges According to a late 2014 report by Stifel Financial Corp., logistics companies won’t benefit from lower fuel prices as much as you’d imagine. This is because fuel surcharges, which shippers often charge to make up for fuel costs, are linked to the price of gas. From the report: “as the cost of diesel goes down, for example, a trucker’s revenue and expenses both decrease.” Some shipping companies may benefit from low gas prices if they base their fuel surcharge on the price of fuel from previous quarters (when gas was more expensive). For companies with a shorter lag time, however, falling gas prices will result in falling revenues. The Stifel report is quick to point out that other factors in the supply chain—such as market demand and mode of transportation—are more likely to have a dramatic impact on supply chain managers and the 3PL industry than the cost of fuel. What Goes Down, Must Go Up Lower gas prices are generally a good thing for any supply chain, especially considering that the savings can be passed on to consumers, encouraging more robust sales. What goes down must go up, and so it’s more productive for supply chain managers to focus on the things they can impact, rather than fretting so much about the cost of fuel. By improving areas such as modes of distribution and inventory control, a supply chain manager will be better prepared for higher gas prices when they inevitably go back up.
Posted: 3/4/2015 2:15:17 PM by Global Administrator | with 0 comments
Filed under: Chain, Logistics, Manager, Supply, 3PL

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