Its not easy managing your companys shipping effort. You have to be concerned about product availability, warehouse management, moving your shipments more quickly, maintaining the status of your shipments and better managing the cost of shipping. Oh, the cost of shipping. That used to be easy. You knew the parcel carriers base rates, and you had a carrier contract that clearly listed the discount levels that you were able to negotiate. By simply applying one to the other, you knew what it cost to ship a 10-pound package to a zone seven consignee.
My, how times have changed! Radically escalating fuel prices have created a Rubiks Cube for the management of shipping budgets. Fuel surcharges have changed the way we manage shipping prices. Lets take a quick look at how the price has changed from July 2005 to July 2006 to ship that 10-pound, zone seven package via UPS, assuming 20% and 40% discounts respectively for Ground and Next Day Air services.
| Charge | FuelSurcharge | New NetCharge | Charge | FuelSurcharge | New NetCharge | |||
Base | Old Net | Base | Old Net | ||||||
Jul 05 | $7.37 | $5.90 | 2.5% | $6.04 | $53.00 | $31.80 | 9.5% | $34.82 | |
Oct 05 | $7.37 | $5.90 | 3.5% | $6.10 | $53.00 | $31.80 | 12.5% | $35.78 | |
Jan 06 | $7.69 | $6.15 | 3.75% | $6.38 | $58.90 | $35.34 | 12.5% | $39.76 | |
Apr 06 | $7.69 | $6.15 | 3.5% | $6.37 | $58.90 | $35.34 | 12.5% | $39.76 | |
Jul 06 | $7.69 | $6.15 | 4.75% | $6.44 | $58.90 | $35.34 | 16.0% | $41.00 | |
Pretty dramatic increase, wouldnt you say? In this example, from July 2005 to July 2006, Ground and Air charges increased 6.7% and 17.7%, respectively. No wonder so many shipping managers are scrambling to reduce spending as best they can.
I wish I could give you some good news regarding the future of fuel surcharges, but I cant. According to the Energy Information Administration (Official Energy Statistics from the U.S. Government), petroleum consumption in 2007 is projected to increase by 2.1%. Transportation diesel fuel consumption is projected to show solid growth in 2007, averaging 3.4% per year as the economy continues to expand.
Now the bad news: through the first six months of 2006, refinery inputs of crude oil have declined an average of 490,000 bbl/d (3.1%) relative to the same period last year. There are several reasons for this decline. A number of refineries remained shut down or operated at reduced rates because of hurricane damage. Others pursued maintenance schedules that had been deferred from last fall, while others installed equipment to meet the new Tier 2 gasoline and ultra-low-sulfur-diesel regulations. Regardless of the reason, when supply is reduced and demand stays constant or increases slightly, prices will continue to increase over the short-haul.
All of this translates into the need for greater attention by small package shippers to prices and services. You need to go back to the basics: one, dont use air service unless absolutely necessary, and two, identify the ZIP Codes where you can use Ground service and get the package there in one, two or three days and avoid the costly price of Next Day, Second Day and Three Day services.
Where fuel prices are going is almost impossible to accurately forecast. But the threat of higher prices should keep your interest for some time to come. What will happen is anyones guess. One thing is certain; you need to be aware of what impact fuel surcharges are having on your overall shipping costs. Dont be caught flat-footed by the spiraling costs. You may not be able to control surcharges, but you should always know their impact!
