Energy Price Hikes & Freight Procurement

With news that gas prices have officially hit the highest national average since 2008, shippers and their freight procurement teams are focused on what this could mean for their operations– and their transportation budgets. Already coping with a historic supply chain snarl-up, the energy price surge could hardly come at a worse time for freight procurement professionals. Here are a few reasons why.

Budgets Strain Even Further

Transportation and logistics-related costs can account for roughly 10% of total COGS depending on the industry. Any upward movement with energy cost eats into a shipper’s profit margin. With budgets already stretched razor-thin, many shippers have been forced to optimize their freight procurement process to help mitigate rising freight procurement costs. Freight procurement automation technology has helped shippers circumvent the costly broker market and move goods on time, at fair market pricing.

Capacity Issues Deepen

Because of these rising costs, many carriers are having to be more discerning about which routes they run, and how often they run them, in order to maximize their fuel budgets. This means that available capacity is going to become both tighter and more erratic, and shippers are going to have to rethink their logistics plans in tandem so that they can navigate these circumstances.

Consumers Feel Price Hikes

One of the hidden but arguably most negative impacts of energy price hikes is what it will mean for shippers and their customer relationships. Given how stretched budgets are already, very few shippers can afford to simply “eat” their rising procurement costs, and thus, have to pass these costs on to consumers – which is obviously not ideal, especially now. In addition, because of how fragmented the logistics supply chain is going to become over the next few months, customers will likely once again experience sporadic product availability as shippers struggle to access capacity.