The tensions in Egypt, Syria, Libya and Yemen have already begun to have a serious impact on supply chain spending. As a result, shippers are now looking for any opportunity they can find to minimize the impact of Mideast tensions on transportation spending.
NPI, a spend management consulting firm, estimates that the average shipper will experience a 15% increase in transportation costs in Q2 2011 over Q1 2011, with carrier fuel surcharges rising by more than 50% over last year’s levels. Many companies, including large manufacturers and suppliers, are already passing these cost increases on to customers by implementing “emergency fuel surcharges” of their own.
“Rising fuel costs are a grim reality for shippers and consumers. One question is whether companies are doing all they can do to insulate their business and their customers. In most cases, they aren’t,“ says John Haber, EVP of transportation consulting services for NPI.
While most shippers will be unable to fully negate transportation cost increases, their impact can be minimized through the following actions:
1. Find out if you’re paying a fair price for fuel. Most shippers overpay for fuel in the best of times. As Mideast tensions continue to deal a blow to shipper spending, it’s imperative that companies understand what they’re paying today and achieve fair market pricing.
2. Consolidate shipments and switch modes. Exploring different mode alternatives and the cost breaks associated with them, as well as consolidating shipments, can yield substantial savings.
3. Re-evaluate service selection. Companies often elect to ship a package via next day air when it can get there at the same time via next day ground at half the cost. Shippers should analyze their current service selection for more cost-effective alternatives that don’t impact time-in-transit.
4. Closely watch carrier capacity. NPI predicts carrier capacity will increase in Q2 as shipping volumes decrease. Be prepared to renegotiate carrier pricing when this happens.
5. Offset price increases outside of transportation. Companies can offset increases in transportation costs by reducing spend in other complex categories such as telecom, IT and energy. These categories all suffer from low pricing visibility and complicated contracting and billing practices – which makes them prime candidates for cost saving opportunities.