Fuel is a key element that runs the whole trucking & logistics industry. Recently, a strong surge has been seen in fuel prices that have left almost all industries rattled. The trucking industry is no exception in this regard, as it faces the severe implications of high fuel prices regularly. There are many reasons for a gradual increase in fuel costs, such as post-pandemic effects on the global economy, implementation of state levies, currency depreciation, climate change, and, more importantly, the world’s political situation. In this article, we will summarize the major impacts of rising fuel prices on the trucking industry and how truckers can respond to overcome these impacts.
What are the Impacts of Rising Fuel Cost on the Trucking Industry?
Increased Freight Rates
Rising fuel prices have a domino effect on the trucking industry. When fuel costs go up, the trucking companies face a sudden increase in their operational cost and are forced to increase freight rates to avoid going into loss. Carriers increase costs to transport freight, as a result of which the shippers have to pay more to get their freight delivered to the customers. The effect of this surge in freight rates doesn’t only remain to the carriers and shippers; it also brings the receipt of freight (customers and consumers) who have to pay more while purchasing the goods.
High Operational Costs of the Trucking Business
The rise in fuel prices directly impacts the operational costs for truckers. Carriers use trucks and other transportation vehicles to transport freight that runs on fuel. So, even the slightest change in fuel prices can increase the operational cost of a truck by thousands of dollars. For example, suppose the price of fuel is $2.38 per litter. In that case, the overall yearly operations cost of a truck that runs 8 hours a day and 5 days a week can be around $384279. However, if the fuel price goes up to 2.72, the overall operation cost becomes $400684, which means with only a $1.34 increase in fuel prices, the operation cost is increased by $16000. The high operational costs directly affect almost every stakeholder of the trucking industry, whether it’s carriers, shippers, or truck drivers.
Service Closure and Lower Transportation Capacity
Rising fuel prices can have the following major impacts on the services and transportation capacity of trucking companies:
- With rising operational costs due to high fuel prices, trucking companies can’t afford many employees and a big fleet. Therefore, they’re forced to sack employees and sell extra trucking equipment, significantly lowering their transportation capacity.
- Under the impact of rising fuel costs, trucking companies try to save their capital by closing their services in areas where their profit margin is less. It could trigger several logistics issues, such as interruption in the supply chain of essential commodities.
Product inflation refers to the increase in products’ prices. As the fuel price increases, the shipping costs of different products also increase. Trucking equipment that is used for freight transportation also becomes more expensive, due to which it becomes challenging for trucking companies to keep their trucking equipment upgraded.
How Can Trucking Industry Overcome the Impacts of Rising Fuel Prices?
Constantly fluctuating fuel prices are certainly a big challenge for the trucking industry to tackle. It’s true that truckers can’t nullify the impact of rising fuel prices on them, but they can reduce it by adopting modern strategies. Some of the major steps that truckers can take to safeguard themselves against the impacts of rising fuel costs are as follows:
- Adopt modern mechanical strategies to improve oil efficiency
- Shifting to other renewable and sustainable sources of energy
- Adopt the nearshoring approach in which the length of transportation for products is reduced by sourcing raw materials and products from locations that are near the end market.
Among these strategies, shifting to renewable and sustainable energy sources is under research. The experiments are underway on the vehicles that run on solar energy. However, there’s still more distance to be covered to achieve a complete shift to the sources other than fuel.
Datla logistics is a freight dispatching company providing dispatching services to owner operators and fleet carriers. We also provide freight shipping quotes to shippers who are looking to have their shipment delivered in a safe and timely manner.