By Dave Sullivan, Senior Consultant, Professional Services with Alex Rose.
Fill up your car lately? How much did you pay? $40? $50? $60? All over the country, the price of fuel is skyrocketing. Some analysts are predicting that the national average will be above $5 a gallon before Memorial Day. There is a perfect storm brewing, with closing refineries, Wall Street speculation, and Middle-Eastern turmoil causing the price of fuel — and especially diesel — to go through the roof.
This shouldn’t come as too much of a surprise; a similar scenario has played out over the last few summers. Like many shippers, you may have resigned yourself to the idea that, like death and taxes, fuel increases are just another cost you will have absorb. If you’re smart, however, you will act to mitigate fuel cost increases in other ways.
Here are five fundamental rules that every shipper should follow:
1. Does It Have To Be There So Soon?
Does the package have to be there right away? Are you sure? There are plenty of shippers that “have” to ship express or overnight. Through either a misplaced sense of urgency or a sales/marketing department that has made some crazy promises, the shipper is spending a fortune sending packages at the fastest rate possible. There are a couple of possible savings to be implemented here. To begin, there is a significant savings to be had between shipping via 2 or 3 day services as opposed to more speedy methods. Then there is the fact that shipping at a lower rate will mean a smaller fuel surcharge —fuel charges are calculated as a percentage of the base price. As fuel prices (and thereby surcharges) increase this summer, you’ll find the benefits of shipping at more sensible service levels grow and grow.
2. Airplanes are Great, Now Put It In the Truck
Similarly, you’ll find significant savings if you ship via Ground as opposed to Air. Ground rates are almost always less than air rates anyway. When factoring in the price of fuel, however, there are even greater savings to be had. Historically, the Air fuel rate is between 50 – 75% more than the Ground fuel rate. While it is common to assume that air is the fastest method to ship a package (planes are cool!) the reality is, for lower zoned destinations, it may not actually make a difference at all. Ensuring that all lower zoned destination volume is sent via Ground will save on fuel without sacrificing time in transit.
3. Negotiate, Negotiate, Negotiate
An important factor to consider is that when it comes to carriers, you are the customer and it is up to them to suit your needs. With that in mind, in all matters carrier, you should negotiate, negotiate, negotiate. Remember, all rates and charges are up for grabs. If you have a carrier that won’t negotiate over fuel, dump them; go and talk with another carrier that is worth your time and business. Freight shippers (LTL and Truckload) in particular benefit from massive carrier markets. Make a willingness to negotiate over fuel one of the key attributes to look for when you are shopping for carriers.
Directly negotiating over fuel isn’t the only way to save, however. There are plenty of other areas where you can improve the base price, knowing that these tweaks will impact your fuel surcharge as well. Any time you discuss fuel surcharges and contracts you should also be hunting for savings on accessorials and in the terms and conditions in your agreement.
4. Send it Downstream
If you can’t gain enough traction with options 1, 2 or 3 (and have leveraged all available resources like our Professional Services team) it may be time to try something a little more radical. Fuel prices go up so what do the carriers do? They pass them along to you. So what do you do? Sit there and fume? Of course not, where appropriate, you can always pass the cost along to your customers. Now, most of you work in competitive markets and would probably balk at such as suggestion. Remember, though, especially for retail shippers, what’s true for you is true for your competitors. Look to see what your rivals are doing and react accordingly. If they are raising prices it may be a sign that you need to as well. Even if you don’t recoup the total increase in shipping costs, you can offset a great deal of pain by passing it along to consumers.
5. Spread Out to Stay Afloat
If all else fails, consider going ‘big’ in your efforts to isolate yourself from the fuel crisis. Many shippers get into trouble when they expand into markets far away from their traditional distribution center. While a company may be founded in New England, when its business grows to a nationwide market, it will find it is hugely expensive to remain in that traditional hub. Instead, shippers should look to spread out to smaller regional distribution centers. Case in point; shipping from Boston to Sacramento, Phoenix or Denver can be very expensive; especially if that shipment has to be sent express or overnight. However, shipping from Salt-Lake City to Sacramento or Phoenix to Denver is far cheaper. Beyond that, even if the shipment needs to travel quickly, with the shorter distances, there will be better, cheaper options than the premium express or air methods.
Learn more about how BirdDog can help you optimize your parcel contracts.
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Tagged Fuel Rates