Transportation Cost Trends

Supply chain managers know that the cost of fuel and the cost of labor are important determinants of the cost of transportation services. Recently however, seemingly less obvious but important transportation service cost factors have gained the attention of logistics management professionals. A notable few are security and the consolidation trend.

Fuel

What do the four modes of transportation (trucking, rail, water and air) have in common? They all need fuel. The effect of fuel prices, then, is obvious. If the price of fuel goes up, so does the price of transportation. Many sources provide information that can be used to gain an understanding of fuel pricing trends. The Department of Energy’s website serves this purpose well. It provides a wealth of high-level fuel information. U.S. and Canadian gasoline prices are also monitored on nearly “real time” websites like gasbuddy.com. However, as was noted in The Wall Street Journal, “because the sites rely on volunteers, listings in some cities are patchy (1).”

Labor

The cost of labor is another obvious factor in the pricing of transportation services. According to a recent Logistics Management article, wages in 2002 were inflated 2.3% in trucking, 6.9% in water transportation and 5.3% in warehousing (2). This type of data can be confirmed at the U.S. Department of Labor’s Bureau of Labor Statistics website.

Security

Since the events of September 11, 2001, there has been a greater focus on increasing security in the transportation industry and much discussion regarding the effects of imposed regulation. But, as noted in another recent Logistics Management article, despite all the talk, decisions are still driven by profits, not security (3).

In fact, many U.S. motor carriers have long deployed sophisticated security technology to ward off thefts and improve efficiency (3). Indeed, one transportation CEO was quoted in Logistics Management: “beginning in 1994, we had 100 percent of our fleet on GPS (global positioning system) tracking systems. From pickup to delivery we knew exactly where everything was.” The article goes on to quote another CEO in the radio-frequency tag business: “The bottom line for carriers in all modes is what dictates their spending on security technology. The honest truth is that, while a lot of people like to talk about security, if it doesn’t come for free with productivity enhancers, people aren’t interested (3).”

But people do become interested when it is the law. In fact, Robert Bonner, U.S. Customs commissioner, was quoted by MSI: “Combating terrorism is our number one priority (4).” A notable example is the 24-hour rule, which has required overseas shippers to send a manifest electronically to the U.S. Customs Service 24 hours before the vessel leaves it port. As noted in the MSI article, “buyers used to receive overseas goods in containers described simply as ‘freight of all kinds.’ Companies didn’t have to report the incoming materials until the ship was at sea. The fax was considered advanced technology.” The imposition of the 24-hour rule on Dec. 2, 2002 changed that.

Consolidation

Trucking services, in particular, are being affected by a consolidation trend. In April, Logistics Management editors wrote that they “expect for small truckers to head for bankruptcy in record numbers, and the remaining carriers will enjoy some negation leverage as a result.” For this reason, they expect trucking prices to rise further when the economy picks up (2). For more information regarding the transportation outsourcing trend, see related SCRC Features “Finding a Place for Logistics Management“ and “Transportation Outsourcing Decisions.“

References:

(1) Turner, R. (March, 2003). Finding Better Gas Prices. The Wall Street Journal.

(2) Anonymous. (March, 2003). Price Trends. Logistics Management.

(3) Spiegel, R. (March, 2003). What Price Security? Logistics Management.

(4) Spiegel, R. (May 8, 2003). The 24-hour hurdle. MSI