Feel like it’s costing you more to keep Purchasing & Procurement purring along at top speed? You’re not alone — and you’re right.

Supply chains are being squeezed from both sides: Rapidly increasing fuel prices are putting the budget through a wringer, and the demand for quality performance and efficiency is higher than ever.

The overall cost of logistics in the U.S. jumped 7% from 2007 — going up nearly $100 billion to $1.4 trillion. Sounds like big numbers, we’re kicking around, right? You bet: Logistics costs now represent 10.1% of the U.S. gross domestic product (GDP).

Where did this come from?

Transportation costs rose 6%, which you likely saw in fuel surcharges throughout the year. Why? Diesel fuel prices increased 6.5% from 2006 to 2007 — and have doubled since 2000. Topping off the tanks of a big rig now runs you about $1,100 — up from about $720 last year.

What about air cargo? Each $1 increase in the price of a barrel of oil — and we’ve seen plenty of those — bumps up airline fuel expenses by $465 million. Already, many companies are leaving the friendly skies and sending goods by way of slower — but cheaper — ground transportation.

The price of warehousing has gone up nearly 10%. This is more indicative of a general trend in warehousing — shifting to more regional distribution centers. This helps by trimming delivery time and delivery costs, since it takes less fuel when you’re doing more local runs. But in the meantime, the transition can get kind of clunky and initially take more time than it will down the road.

What can you do?

These changes might be coming at you fast and furious, but most businesses aren’t equipped to react and overcome each one as it appears.

The best solutions involve a combination of strategies:

• Consider looking into lining up intermodal transit for more of your shipping. It’s slower, but it’s usually more predictable. That can help when you’re trying to keep your word (and quoted price) with customers.
• Price rail hauling versus what you’re now loading on trucks. Do the routes exist that you’d need? How much cheaper would it be than taking the trucks overland?
• Finally, look for ways to consolidate your own shipments going out. Do you have customers who can get along fine on one delivery per week, even though they’ve been getting two? As you know, business conditions change. This step also includes checking out what’s available in LTL (Less Than Loaded) opportunities. This is an opportunity to collaborate when sending out small shipments.

Tags: air, hauling, intermodal, loading, rail, shipment