Transportation Costs Continue to Increase — How Can You Respond?

Rising transportation costs continue to plague manufacturing and distribution companies. There are a variety of drivers eliciting these increases, some of which cannot be mitigated. The good news is that others can. How? By reviewing and assessing transportation data and processes.

To begin, what’s led transportation costs to escalate so drastically? There are four main drivers.

First, the ever-increasing fuel prices have led transportation providers to pass down these costs to their customers. FedEx and UPS are adding 25 cents to each ground package, truck fuel surcharges are between 10 and 13 percent, rail fuel surcharges are rumored to be increasing from 10 to 13 percent, and ocean carriers are charging a $680 BAF (bunker adjustment factor) and $227 inland per FEU (40-foot equivalent unit) on trade between Asia and the United States.

Second, the demand for truck drivers exceeds the supply. It’s estimated that the United States needs approximately 20,000 long-haul drivers; as such, wages are expected to increase approximately 7 percent per year—a cost which will be passed down to customers. In addition, hours-of-service limitations have resulted in a 3 percent decrease in long-haul driver productivity, and short hauls have been affected with heavy “waiting-hour” fines for delays in loading and unloading.

Third, all transportation modes face capacity constraints from June to November due to holiday cargo traffic from Asia to the United States. Finally, heavy traffic in urban areas and transportation hubs coupled with poor overall infrastructure have led to increased time to deliver and surcharges for waiting time (trucks sit stalled in traffic, cargo sits at overwhelmed docks, airplanes circle airports, goods sit in rail cars unable to move on crowded/dilapidated tracks, etc.).

Now that you know what’s causing the problem, how should you respond? Consider reviewing and assessing your transportation data and related processes to mitigate these rising costs. Such a review would include the following:

• Identifying and addressing carrier performance issues (quality, on time delivery, etc.)
• Identifying triangulation, backhaul, route change, and mode change opportunities
• Assessing the cost-benefit of outsourced transportation or third-party logistics providers
• Identifying rate classification issues (ensuring you’re classifying cargo correctly to get the right transport rate)
• Investigating and recommending transportation versus inventory “total-cost” options (when transportation is cheap, just in time (JIT) is desirable; when transport costs are high, JIT can become cost prohibitive)

If you could benefit from such an analysis, or you’d simply like more information, please contact Sarah Banks at 248.223.3771 or Krissa Corkins at 248.223.3667.