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What’s the Economy Got to Do with It?

GMT Benchmark survey respondents indicated “carrier surcharges” and “fuel” as major drivers of cost inflation. What’s driving these expenses?

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The pivotal takeaway from GMT Benchmark survey respondents is an urgent feeling or need to understand the larger world around them, specifically as it relates to their individual shipping network. Aka, how it’s driving network costs up. Survey respondents indicated “carrier surcharges” and “fuel” as major drivers of cost inflation. That’s no surprise when you consider a year ago, oil prices fell below $0 as traders paid consumers to take their stock. Yet today, oil prices continue to make history – but for record highs. It’s truly been a whiplash year, despite a more favorable peak season.

Increased oil consumption, insufficient production, and the recent compounding tension caused by Russia’s invasion of Ukraine have all steadily driven the price of oil per barrel upward.

Parcel and LTL shippers (and even their consumers) face a volatile environment, set further on edge by uncertainty over the timeline and outcome of the Eastern European war, as well as the long-term effects of various sanctions placed upon Russia that threaten the U.S. oil supply. For market analysts trying to gain a clear picture of what’s to come, China’s rising COVID-19 infection wave blurs the lines of the global supply chain further.

What we do know for certain is global costs are on the rise, and carriers pass these costs onto the shipper where possible (who, in turn, must decide whether or not to pass these expenses onto the consumer). Fuel is an ideal example of how the greater economy is raising the financial impact on shippers.

A Closer Look at Fuel

The increase in fuel prices this year alone has prompted trigger points which caused the fuel surcharge percentage for FedEx Express rates to increase 10 times YTD, growing 12.75% to a total of 24.25% (January 1, 2022 – May 22, 2022). Granted, it is expected that with the price of fuel continuing to rise daily, shippers will continue to pay an increasing percentage of fuel surcharges accordingly. Nonetheless, both increasing changes to fuel indices (along with rising fuel percentages) will have a larger cost impact on shippers if oil price increases continue as they have.

Take a large national carrier like UPS for example, who reported a $2.9B (or 11.5%) increase in Q4 2021 earnings. The rising cost of fuel did not hinder their bottom line, as it is the shipper who is ultimately on the hook to cover such an expense. Now, add to that increasing fee more fees which have spawned from the pandemic – like related accessorial and surcharge fees for residential or delivery areas (including extended). The result is a new, sometimes burdensome, responsibility on the shipper to truly understand larger economic outcomes when discussing a carrier contract, planning a network budget, or even seeking to effectively reduce spend.

Looking Forward

Up until now, we’ve painted a bleak picture in which shippers have very little control over the rising fees eating at their network budget and business revenue. But the point of exploring these realities is not to lose hope – it’s to gain knowledge that can drive better, more prepared, proactive decision making.

We operate in a global supply chain, and that means events like this impact all of us, big or small. Perhaps your contract and/or your budget won’t be able to predict a global pandemic or a major conflict overseas, but it should be intelligent and flexible enough to spot indicators of rising costs so that you can plan and act accordingly.

Monitor the larger supply chain just as you do with your own network, so that you can revise and adapt your budget to ensure a successful path forward. Do you need help monitoring, budgeting for, and guiding the spend of your Parcel or LTL network?

Consider that the shipping giants choose GMT’s innovative technology, unique market view, and perspective on the customer experience, all of which uniquely position us to guide your network’s growth and savings. Contact us today to learn more about how we can partner with you and build a successful network roadmap.

For even greater insights into the 2022 parcel and LTL industry landscape, download the full GMT Benchmark Report.

Download the GMT Benchmark Report

 Written by Daniel Johnston


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