Why transportation and logistics costs are more than just the sum of fuel prices
Transportation and logistics are essential for companies all across the country, yet many C-suite executives have little to no training in the transportation and logistics fields. As a result, some executives have an unrealistic view when it comes to their transportation budget. Unfortunately, without the training they need, they fail to understand how the industry’s costs are tied to far more than just the current price of fuel. Case in point: two of the nation’s largest logistics providers, UPS and FedEx, have announced new fuel surcharges even though the price of gas continues to decrease.
At Choptank Transport, we are often asked why shipping costs aren't lowering along with the gas pump prices. To understand the real costs in the logistics arena, an understanding of how all the working parts contribute to the final pricing is required. The transportation industry’s expenses include several other factors beyond just the fuel in their vehicles.
Today’s transportation industry faces numerous challenges
As the global economy has grown, the transportation industry has struggled to keep up. Research shows more ships are entering our ports from overseas than ever before. In addition, these ships are also far larger than the ships of a generation ago, meaning they can hold more cargo and require more trucks for transporting it.
The transportation industry, however, is struggling to fill these trucks as the driver shortage persists, upsetting the balance between supply and demand.
Government regulation, for its part, has never been more stringent, further delaying the transportation process and reducing its overall capacity. All of these issues combine to negate the savings expected from the drop in fuel prices and are responsible for new surcharges across the country.
Making executives understand
Like the companies they run themselves, C-suite executives must realize their transportation expenses are not determined simply by the price of fuel, as the industry is far more complex than that. Instead, market price reflects supply and demand, as well as the effects of other factors like regulation, industry capacity, driver shortages and, finally, the price of fuel. These are the essential components of a service that companies across the nation depend on every single day.
Do you think the price of fuel will remain low in 2016?
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