Global Logistics and Supply Chain Strategies - October 2008 - (Page 44)

High Fuel Costs Push Efficiency Efforts to Top of Supply Chain Agendas BY JEAN V. MURPHY Rapid increases in the price of diesel fuel have decimated transportation budgets and forced companies to look for strategic and tactical steps to become more fuel efficient. O n Jan. 2 this year the price of crude oil broke the psychological barrier of $100 a barrel. After running up to nearly $150 in July, the per-barrel price dropped back, but remains highly susceptible to market changes. This rapid price increase, coupled with sometimes violent volatility, is playing havoc with transportation costs and spurring companies to intensify efforts to make their supply chains more fuel efficient. “The escalation we have seen in fuel costs this year is unprecedented and goes well beyond what any of our customers budgeted for—or what we budgeted for internally,” says Greg Lehmkuhl, executive vice president of operations at Con-way Freight, San Mateo, Calif. “As a result, our customers are looking at every aspect of their distribution strategy.” Lehmkuhl, previously an officer at Menlo Worldwide, Con-way’s logistics business, says Menlo customers are sending a clear and strong message that “everything is on the table, and that we should leave no stone unturned when it comes to helping them get these costs under control.” “Customers have taken the handcuffs off in terms of things like co-mingling freight to improve cube utilization,” says Terry Miller, executive vice president–operations at Penske Logistics, Reading, Pa. “They are more open to this type of collaboration than ever before because everyone is feeling the pain.” Schneider National, Green Bay, Wis., is getting similar feedback. “Everybody is essentially blowing through their transportation spend budget this year. And they are getting a lot of pressure from within the enterprise to try to find ways to mitigate those costs,” says Bill Matheson, president of the intermodal division. He predicts that this is just the beginning of a situation that will go on for many years. “Part of the challenge for these managers is to condition the rest of their organization to understand that the trend of recent years is reversed and supply chain costs are going up.” High and volatile fuel costs also complicate planning going into 2009, says Tom Jones, senior vice president at Ryder System, Miami. “Nobody really knows where the price of oil will be and that means they don’t know what supply chain and logistics costs will be. This is having a cascading impact through organizations as they start developing 2009 business plans. It is very difficult to set a price for the cost of goods that will recover the cost of fuel when you have no idea what the cost of fuel will be.” While companies can’t control oil prices, there are many things they can do to mitigate the impact of higher prices, both strategically and tactically. One strategic step, which also can reveal short-term opportunities, is to use network planning and optimization tools to assess whether current networks still make sense in light of higher transportation costs. “We see a lot of companies re-evaluating 44 OCTOBER 2008

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Global Logistics and Supply Chain Strategies - October 2008

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