Impact of Rising Fuel Costs on Logistics Industry

Posted On: May 11, 2022

Posted By: appsrhino

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Fuel prices have been inching up day by day – product inflation is bound to take a toll on all!

What could the general mood of the logistics industry be? Another survival strategy to combat the fuel melee?

We are in the midst of an uber-competitive era, where logistics play an uber-important role in supporting the operations and functioning of multiple other existing and emerging industries worldwide. The recent global fuel rise has been sending turbulent ripples across sectors, and like other industries, the logistics industry has been grappling with its devastating effects. For them, executing the flow of goods and services from the suppliers to consumers has become a costly affair. The overall logistics cost is bound to take a jump, and absorbing them in out, would dig a deep hole in the pockets of these logistics players, significantly marring their profit margins.

Summary

The logistics industry relies heavily on fuel. Though the price hikes daunt across every sector, it has majorly been pressing the end consumers. Various geopolitical caps and our hefty consumption have surged the fuel prices. But with the help of technology, it is possible to improve the supply chains, sourcing and labor management, load cost, and more, an overall more efficient industry. It will help in reducing the hands involved and improving the margins.

Pressing End Consumers

Companies' lesser margins mean that none other than the end consumer will bear the brunt. These increased prices will press them, and in most cases, they would end up paying more for almost all kinds of products – from groceries, medicines, electronics to many more. Indeed, it is an unnecessary expense for the innocent consumer who ultimately becomes the victim of the fuel-related turmoil. The price changes in the high-cost, high-value items like auto, electronics, etc., will probably not upset them more since a marginal increase in the already highly-priced items is usually ignored. 

However, the price changes in the low-cost things like groceries, medicines, etc., will undoubtedly be notable and problematic for them.

Logistics- a vital participant in the economy

As a critical enabler of other core sectors of the economy (like manufacturing, trade, e-commerce, etc.), the logistics sector constitutes almost 10-14 percent of most countries' GDP. Moreover, the logistics cost is also substantial, adding around 30 to 40 percent of the total cost of goods. Before delving deep, it is crucial to understand what constitutes these logistics costs. Well, of course, there are labor, storage, and administrative costs, which again depend upon the nature of goods, perishable or non-perishable. Besides this, fuel costs are the most critical component of the total logistics costs, comprising almost 50-60% of it. Thus, any fluctuation in the fuel cost is bound to give an upward push to the overall logistics costs.

Hefty Consumption

But, very importantly, what could be triggering these changes in the fuel rates? Various macro-level factors related to the environment or economy, politics, changes in government regulations, technology, etc., have an excavating impact on fuel pricing. Moreover, global fuel consumption has consistently been rising over the last few years, while fuel supply has certainly been lagging. The price behavior typically changes due to one or many factors mentioned above.

Technological Shelter

So, going by the notion that these fuel price shocks would be inevitable in the future, logistics firms need to be brighter than ever. Embracing technology and gaining control over advanced logistics management techniques could undoubtedly help reduce the impact of this ongoing phenomenon. 

The effect will subside for players with alternate strategies in place, while the recovery could be protracted for others. What is essential is to ensure that the supply chain remains unaffected in such cases and the industry sustains from the daunting impact.