There are several ways in which logistics companies can cut costs and increase their profitability. However, in the present scenario, one of the best opportunities for logistics service providers to reduce expenses is to effectively deal with the problem of rising fuel costs in an innovative way. Companies in the transportation and logistics sector have no control over fuel prices which have been skyrocketing for more than a year because of several global factors. Following the war in Ukraine, fuel costs have risen at an unprecedented rate. This has posed a stiff challenge for the freight forwarding industry which is now forced to run on smaller capital and tighter profit margin.
Nevertheless, there are several ways in which independent freight forwarders can mitigate the impact of the increasing fuel costs and take actions to reap long-term benefits when the prices start to normalize. In today’s blog, we are going to talk about several useful ways in which players in the transportation and logistics sector can better deal with the increasing cost of fuel and boost their profitability in the long run.
Tips for logistics companies to address the problem of increasing fuel costs
Implement a fuel surcharge
Most freight forwarding companies usually have fuel surcharges already built into the contracts. In case your company doesn’t have a fuel surcharge in place then now is the time to implement it. As an independent freight forwarder, you need to apply the fuel surcharges to your contracts and even renegotiate your existing contracts. Keep in mind that including even a small percentage of the surcharge on your original quotation can make a real difference and add to your profitability.
Invest in route planning software
Independent freight forwarders have the option of investing in route planning software for achieving cost efficiency. The use of route planning software can help freight forwarders with fuel expense mitigation. These software effectively plan routes that optimize operations and result in minimal fuel expenditure. Some of the best route planning software in the market can even recommend different routes according to the level of fuel cost. Moreover, they can also adjust the delivery plan enroute in accordance with the traffic and weather condition thus lowering the net delivery expenses, wait time, fuel consumption, and driver time.
Make use of dynamic service pricing
Clients who do not want to pay a fuel surcharge might be ready to accept a longer delivery time to keep their expenses at a minimum. Therefore, as an independent freight forwarder, you need to provide your clients with a range of delivery pricing before finalizing the deal. This will allow your customers to choose if they want fast delivery times or opt for slow but low-cost options. If your customer goes for the low-cost delivery option then you need to select a slower mode of transportation with longer delivery times. You can even choose to delay the cargo so as to consolidate several orders for the same clients or from different clients from the same city. Dynamic service pricing can make your delivery operations more productive while reducing your fuel expenses.
Look into vehicle performance and driver performance
Logistics companies need to perform vehicle inspections from time to time to make sure that the engines and tires are perfectly tuned to lower the consumption of gas. Additionally, they also need to check the driver’s performance to keep their fuel consumption under control. In order to lower the amount of fuel used per trip, the driver needs to lower their speed, stay on smooth roads and keep the time as low as possible. Using a route optimization software can help you in this regard as well.
Collaborate with your partners, carriers and clients
Rising fuel costs are the perfect chance to cooperate with other members of the supply chain such as your logistics partners, your carriers and your customers. You need to have frequent communications with them and together identify the policies and practices that can help to reduce the collective expenses.
Renegotiate the carrier contracts
Your existing contracts probably haven’t given much consideration to the rising fuel costs. Therefore, you should consider renegotiating your contracts with carriers with a focus on fuel expenses. Moreover, freight forwarders should start reducing the number of carriers and consolidate their supply chain requirements through single sourcing. This will leave some space for price negotiation since most carriers provide discounted price packages for greater volumes.