With today’s current market conditions, the shipping industry is not only suffering from equipment and driver shortages, severe congestion, and capacity issues, but oil prices are now soaring, causing more chaos and disruption at this unprecedented time.
Russia is one of the biggest oil and gas producers in the world, and major disruptions have a significant impact on an already off-balance economy. Since the Russia-Ukraine conflict, oil prices have risen to their highest level since 2008, especially since the U.S. and other Western countries imposed sanctions on Russia. Whereas a barrel of oil cost about $90 a month ago, now prices are surging around $130 a barrel.
Similarly, the average price of regular gas in the U.S. is up 23% from the beginning of the year. Just in one day this week, the average price of a gallon increased from $4.17 to $4.25, and the prices are much higher in states like California. Forecasts predict the numbers will continue to climb, and the national average could reach over $5.00 per gallon.
As a result, transportation companies nationwide cannot absorb the exorbitant prices and are forced to readjust the cost of their services. Many are doing so by adding or increasing fuel surcharges to mitigate the financial impact of the rising fuel prices.
Fuel is one of the largest expenses for a trucking company, and some companies are paying double what they did for diesel fuel at this time last year. While larger fleets may have pricing deals with fuel suppliers and already have fuel surcharges written into contracts, many smaller owner-operator companies must pass the costs down to shippers to stay afloat.
When carriers raise their rates, manufacturers may charge more for their goods, and the escalating prices would ultimately pass down to the consumer. “Increased costs will likely be shared among companies along the supply chain, but details will depend on contracts and relationships between companies,” according to Jonathan Gold, National Retail Federation Vice President for Supply Chain and Customs Policy. “Whether retailers will be forced to pass costs along to customers will be based on individual retailer’s decisions.”
There are no assurances that fuel prices will return to more typical levels anytime soon. It is more important than ever for shippers to focus on forecasts. Forecasting helps your logistics team secure space in advance and navigate disruptions. We also encourage you to reach out to your Deringer Customer Service Center for guidance and to develop effective strategies for navigating today’s ongoing supply chain challenges.