High fuel prices are on everyone’s mind, for global companies and consumers alike. OPEC+ recently agreed to deep cuts in oil production—2 million barrels per day (bpd) of output, equal to 2% of the global supply—curbing supply in an already tight market. Meanwhile, G7 leaders are considering a price cap on Russian oil, amidst concerns that Russia would ban all energy exports to any country implementing the price cap and crude oil prices could hit $125 a barrel as a result, according to a top commodities strategist. Adding fuel to the fire, the government sanctions imposed on Russia in response to its invasion of the Ukraine have disrupted the flow of complex global supply chains and continue to drive high oil prices. 

While recession concerns and a flare-up of China’s COVID-19 cases may temper rising oil prices, somewhat in response to the fear of reduced global demand, fuel prices remain elevated and volatile—and a potential impediment to profitability for logistics-oriented companies, including retailers, distributors, carriers, and logistics service providers. 

High Fuel Costs are a Company-wide Problem

Tackling the issue of high fuel costs is not solely the responsibility of the transportation department. In fact, many of the drivers of fuel consumption are dictated by other departments, such as sales, marketing, and customer service. As a result, companies need to look beyond their transportation and logistics teams to find solutions to rising costs.  

How customers are served is a major driver of fuel costs, from how regularly customers are serviced to minimum order quantities and delivery times. The finance department is also a critical piece of the equation, helping determine the risk/reward of employing various customer service strategies to mitigate the impact of high fuel costs. The good news is that, by taking an enterprise-wide approach to implementing strategic and tactical actions to optimize fuel consumption, companies can curb the impact of elevated fuel prices on their bottom line. 

3 Immediate Actions to Cut Fuel Costs

1. Optimize performance of drivers and delivery vehicles. Are drivers in the habit of idling, driving aggressively, or straying from their scheduled route? When was the most recent fleet inspection? To reduce fuel consumption, encourage drivers to reduce speed, minimize idling, and stick to their prescribed routes; ensure vehicle engines are tuned and tires have adequate pressure to perform at their highest fuel efficiency.
2. Add a surcharge for incremental fuel costs. More and more carriers and logistics-related companies are implementing fuel surcharges in response to rising fuel costs. While not popular among customers, fuel surcharges applied to new orders (or renegotiated in existing contracts) help mitigate the impact of high gas and diesel costs. Even a small rate increase can make a significant difference to a company’s bottom line over time.
3. Offer customers delivery service choices. In order to keep their purchase costs from increasing, many customers are amenable to slower, less convenient delivery service. Accordingly, choose slower transportation modes and longer delivery lead times. Delay shipments to look for consolidation opportunities with other orders from the customer or customers nearby. Change TMS or route planning system optimization parameters to focus on selecting slower modes and reducing distance.

STRATEGIC AND TACTICAL ACTIONS THAT PAY OFF

1. Optimize the logistics network. As customers come and go, buying patterns change, and product offerings grow, the efficiency of logistics networks deteriorates. Network optimization evaluates these types of changes and rebalances the network to reduce fuel consumption. Focus on service policies, operational strategies, and other ‘soft’ considerations initially to deliver quick results before revisiting brick and mortar ‘hard’ stuff to drive greater benefits.
2. Re-bid carrier contracts. Existing contracts may have been written when fuel prices were much lower—and now significantly penalize the organization given today’s elevated prices. Take this opportunity to establish carrier contracts that prioritize fuel cost reduction.
3. Steer customers and sales to delivery options that drive delivery density. Customers and sales reps may inadvertently make delivery appointment requests that decrease fleet efficiency and increase fuel consumption. Instead, provide customers with delivery appointment options that increase delivery density to help reduce distance traveled per stop, boost fuel efficiency, and lower fuel costs.
4. Employ customer stratification. Customer stratification enables companies to strategically evaluate customers against the revenue generated and the cost to service them. As a result, customers can be mapped into a more cost-effective delivery strategy. For example, hybrid delivery combines dynamic and static delivery in a single planning model to support customer stratification, making the fleet more productive and minimizing fuel costs.
5. Use dynamic delivery pricing. Not all customer deliveries cost the same. Instead, provide customers with unique delivery fees at the point of sale to better capture the real cost of the delivery. Customers can determine whether they prefer premium delivery times or a lower cost option. Many will select the latter, which will make delivery operations more productive, driving down fuel costs, driver hours, and more.
6. Offer eco-friendly delivery options. The environment is becoming an increasingly important factor in consumers’ purchase decisions. By offering an eco-friendly delivery option, companies can reduce fuel consumption while shrinking their carbon footprint and building customer loyalty through a commitment to the environment. It’s a win-win-win approach: the planet benefits, the customer is happy, and the organization enjoys lower fuel and other delivery costs.    
7. Implement optimized transportation or route planning solutions. Companies that are relying on legacy systems should evaluate the capabilities of more modern systems to uncover additional fuel savings opportunities and avoid the many manual workarounds typical of legacy technologies. Manual route planning processes, for example, are handcuffed by their inability to fully optimize appointment scheduling and delivery routes to minimize distance traveled and fuel consumption. By implementing an AI-driven, automated TMS or route planning solution to increase delivery density and optimize delivery efficiency, logistics-oriented companies can reap considerable cost savings.
8.  Deploy telematics. Aggressive driving and excessive idling waste fuel and cause unnecessary vehicle wear and tear that can compromise fuel efficiency. A telematics solution captures critical driver operating data and vehicle data (e.g., real-time vehicle diagnostics, pre- and post-trip vehicle inspections) to identify poor driver performance and help companies maximize the potential of their fleets. Plus, companies can use real-time telematics data to enhance dispatch and tracking performance and capture ongoing operational data to spot trends and support continuous improvement.

High fuel costs can erode profit margins for companies already hobbled by global supply chain disruptions and labor shortages. The good news is that logistics-oriented organizations have numerous strategies, tactics, and tools at their disposal to mitigate the impact of fuel costs today and down the road.