Impact of Rising Fuel Costs on Logistics Industry

Posted on: | Posted by: Chirag
Impact of Rising Fuel Costs on Logistics Industry

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?

Well, 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, logistics industry to has been grappling with its devastating effects. For them, executing the flow of goods and services from the suppliers to consumers has now become a costly affair. The overall logistics cost is bound to take a jump, and absorbing them internally would dig a deep hole in the pockets of these logistics players, greatly marring their profit margins.

This means that none other than the end consumer is going to bear the brunt. The increased costs are going to be passed on to them, and in most cases, they would end up paying more for almost all kind 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 are probably not going to upset them more since a marginal increase in the already highly priced items is usually ignored. However, the price changes in the low-cost items like groceries, medicines, etc are certainly going to be notable and worrisome for them.

As a key enabler of other core sectors of the economy (like manufacturing, trade, e-commerce, etc), logistics sector constitutes almost 10-14 percent of the GDP of most of the countries. Moreover, the logistics cost is also substantial, adding around 30 to 40 percent of the total cost of goods on an average. Before delving deep, it is important to understand what actually 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.

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

So, going by the notion that these fuel price shocks would be inevitable in future, logistics firms need to be smarter than ever. Embracing technology and gaining control over advanced logistics management techniques could certainly help reduce the impact of this ongoing phenomenon. For players who would have their alternate strategies in place, the impact is going to be subdued, while for others, the recovery could be protracted. What is important is to ensure that the supply chain remains unaffected in such cases and the industry is saved of the daunting impact.