Due to Russia’s invasion of Ukraine, the world is seeing an enormous rise in the cost of fuel. For delivery companies in the last-mile space and the customers who rely on them, the effect of those costs has become a paramount concern. UPS and FedEx are already implementing surcharges as high as 15%, and other companies may follow suit. Gas prices are not going to go down anytime soon, so businesses need to use strategic tactics to manage these rapidly ascending fuel prices.
Historically High Gas Prices Normalized Surcharges
When gas prices last hit record highs during the financial crisis in 2008, the experience changed the way last-mile companies approached customer agreements, and surcharges became the norm to deal with the extra costs. Contracts between retailers and delivery companies began to include language specifying that surcharges would apply when gas rose to a certain price point.
Long Term Challenges
Today’s rising fuel prices are creating additional challenges for an industry that is already stretched thin by labor availability issues. Since the beginning of COVID-19, e-commerce has exploded and shows no signs of slowing down. While businesses may hope customers will plan ahead and shop early during peak seasons or bundle package deliveries, these behaviors are not a given. It is better to be prepared for any problems that arise from backlogs or last-minute rushes.
In 2021, the supply chain crisis disrupted delivery speeds during the peak season. To temper the situation, some companies delayed delivery beyond the two-day window. The fuel crisis will likely prompt similar action in 2022. While industry juggernauts continue to promise next-day delivery, it is possible cost mitigation efforts will cause a quiet roll back.
Companies are working to switch over to exclusively electric vehicles for last-mile deliveries. But that transition is nowhere near the point of alleviating the crunch caused by current gas prices. Even if companies were able to rapidly make this change, there are currently not enough charging stations to make this an effective solution.
Alleviating Fuel Costs Through Other Means
Another way to combat soaring prices is to ensure gasoline and diesel-powered trucks are more efficient to reduce fuel consumption. Optimizing delivery routes makes a substantial difference and helps mitigate costs. Using software that efficiently plans trips can reduce miles driven and fuel use, leveraging predictive GPS technology that auto-adjusts for traffic and other issues on the road.
Partnering with the United States Postal Service (USPS) is another viable path to mitigating fuel cost impacts. Delivery companies have partnered with the national organization in the past to help manage their delivery volume. With USPS trucks already on daily routes, last mile companies can use these routes to optimize their own efficiency.
With surging fuel prices and an ongoing supply chain crisis affecting transportation services, Risk continues to stay on top of solutions for the challenges ahead.
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The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.