The Impact of Rising Fuel Costs for Auto Transporters

1. Why Are Fuel Prices So High?
2. The Impact of Rising Fuel Costs
3. Impact on truckload shipping
4. Impact on ocean freight shipping
5. Impact on air cargo shipping
6. Impact on rail shipping
7. Accounting implications
8. How Autotransporters Can Manage Rising Fuel Charges
9. Actively minimize deadheads
10. Reduce dwell time
11. Maximize gas station savings
12. Final Thoughts

As auto-transporting companies continue to reduce and reallocate costs due to rising prices across the board, many have begun reevaluating the shipping techniques they have used in the past. They are searching for chances to save money on expenses and discover valuable efficiencies.

The energy needed to move a vehicle will always constitute a considerable portion of the overall cost of transporting it, regardless of the mode of transportation chosen.

However, as fuel prices continue to climb, businesses are being forced to evaluate their alternatives, which include continuing to operate at a loss, increasing the rates they charge their customers, or looking into creative ways to cut costs.

According to data provided by the United States Energy Information Administration, the national average diesel price was $5.14 a gallon on April 4, 2022. This is an increase of almost $2 per gallon compared to the previous year's price.

So what is the impact on auto transporting businesses, and what adaptation strategies can they employ?

Why Are Fuel Prices So High?

The increase in fuel prices is mainly attributable to the rise in oil prices. Russia's invasion of Ukraine is the most recent factor driving crude prices higher, but the market was already in motion.

Oil corporations are reluctant to drill after promising shareholders financial discipline. As a result, the national average price of a gallon of gasoline reached a new high of $4.589, up from $3.043 at the same time last year.

Every state averages more than $4 per gallon for the first time on record. Retail diesel prices recently hit an all-time high of $5.577 a gallon, up 76% over the past year.

The Impact of Rising Fuel Costs

Various markers are showing the impact of rising gas prices. This is because volatile gas prices affect practically all efficient transport modes apart from electric vehicles.

Demand destruction, or the degree to which high prices influence consumer behavior, may not yet have occurred on a mass scale due to soaring fuel prices. Still, the effects are spreading throughout the economy.

In addition to reducing the amount of disposable income in consumers' wallets, gas prices also result in rising costs for businesses, which may or may not be passed on to customers.

These are some of the impacts of the rising fuel costs on shipping businesses:

Impact on truckload shipping

Rising diesel costs directly impact trucking companies and the consumers who use those services. This problem is made even worse because there is already a shortage of available labor and increased demand to satisfy customers' expectations of faster shipping.

Trucking companies add a standard fuel surcharge to each load to compensate for the increased price of oil. This action helps the companies maintain their profitability despite fuel costs.

In addition, trucking industry profits are affected by post-delivery, empty-cargo "deadhead" kilometers, and the costs of other parts, which further drive up prices.

Furthermore, it might be financially challenging for mechanics to cover the fees of calling for roadside help if a truck breaks down while traveling on the road.

Impact on ocean freight shipping

The current price of energy costs is further driving up the cost of ocean freight transportation, which is already struggling under the weight of greater prices brought on by preexisting problems in the supply chain, such as a shortage of storage and port capacity.

Companies are beginning to turn elsewhere as the potential for making a profit becomes increasingly difficult due to the low cost and better margins associated with the economic activity, which often sets it apart from other methods.

Ocean carriers, much like trucking companies, are passing these expenses on to customers in the form of surcharges because the cost of fuel accounts for the vast bulk of the total cost. In addition, a significant number of carriers will also engage in the practice of "slow steaming" on ships.

Slow steaming means slowing down (often to less than 15 knots, rather than the usual speed of more than 22 knots) to reduce fuel consumption. This is analogous to how trucking companies regulate the maximum speed of the trucks to reduce fuel consumption.

Although this technique for mitigating costs makes shipment times longer than they already are, it nevertheless saves money for carriers. It also minimizes the amount of pollution they produce.

Impact on air cargo shipping

In recent years, air cargo has increased in popularity because many companies, such as Crocs Inc., have begun to increase their investment to avoid the supply chain slowdowns affecting other available options.

However, as jet fuel prices continue to rise, it is becoming increasingly difficult to explain the additional value that delivering at a faster pace provides while still maintaining margins.

Even before today's increasing pricing and more disorganized supply chain, it was common knowledge that air freight was the most expensive method available for transporting goods.

According to the International Air Transport Association, the price of jet fuel in the United States has increased by 82 percent since last year, reaching its highest level since 2008.

When supplies and goods are transported by air, they are frequently crammed into the cargo holds of already-existing commercial aircraft.

As a result, the drop in passenger air travel has substantially influenced the availability of space for air freight on passenger aircraft. This method accounts for more than half of all air freight, which is not surprising.

Impact on rail shipping

It is possible that, as gasoline demand continues to climb, many businesses will start to consider rail freight as a more cost-effective and environmentally-friendly choice for moving their products, at least at some point during their journey.

According to the Federal Railroad Administration, trains are four times more fuel-efficient than trucks and can move one ton of cargo at 470 miles per gallon of diesel fuel. On the other hand, trucks can only move one ton of product at 200 miles per gallon of fuel.

Compared to alternative approaches, the required amount of fuel contributes a lower proportion of the total running costs due to the increased efficiency described above.

Better efficiency makes it possible for businesses to cut costs and increase their profit margins, creating a fresh opportunity for many organizations that, in the past, would have gone in other directions.

Accounting implications

Companies that record the freight cost as a component of the carrying cost of inventory follow the Generally Accepted Accounting Principles in the United States ("U.S. GAAP").

Because of the possibility of abnormal freight costs in the current operating environment, manufacturers need to evaluate whether or not the additional expenses are being recorded as a period charge in compliance with Section 330-10-30-7 of the Accounting Standards Codification.

Given the possible impact of the additional freight expenses significantly reducing margins, distributors must maintain a close check on assessing inventory's lower cost or net realizable value.

The modes of transportation that a company uses will be at the forefront of their minds as they continue to scrutinize their operations in search of ways to cut costs and improve efficiencies.

It has never been more necessary to be flexible and knowledgeable and to investigate solutions that may have been previously disregarded. This is because the supply chain difficulties affecting all industries will continue to do so in the foreseeable future.

How Autotransporters Can Manage Rising Fuel Charges

Many uncontrollable factors affect rising fuel costs:

• Driver behavior
• Gas costs
• The microeconomics of supply and demand
• The geopolitics of global oil production
• Currency volatility
• Extreme weather

However, the following steps are within your control to help reduce operational costs:

Actively minimize deadheads

Autotransporters can track the miles that do not directly contribute to revenue generation and strive to reduce them as much as possible. In a survey conducted in 2020 by ATRI, it was found that 20.6% of miles were considered to be deadhead miles.

A large percentage of deadhead miles significantly influences your bottom line, which is especially true when the fuel price is high.

Finding loads for journeys that would have otherwise remained empty and keeping the required distance for the pickup as short as possible are the two most effective techniques to cut down on deadhead.

To accomplish this, you need to understand the available loads better to plan routes that limit the number of empty kilometers.

More than 25,000 loads are displayed daily on the Navisphere® Carrier load board, which also makes load recommendations based on location, minimum deadhead miles, and previous bookings.

It is considerably simpler to maximize revenue-generating miles when one has access to a diverse selection of loads and essential information regarding the freight being transported.

Reduce dwell time

Dwell time can be reduced by streamlining good routines and processes, such as efficient check-in and exit procedures, no-touch palletized freight, and clean paperwork.

Although getting rid of all dwell time is nearly impossible, it is possible to cut it down significantly. Companies that provide third-party logistics (3PL), such as C.H. Robinson, collaborate with numerous "shippers of choice" on live load freight to ensure that all procedures are optimized for the shortest possible dwell time.

Collaborating with drop trailer providers is another way to reduce wasted time. Truckers can detach their trailers when transporting power-only loads and immediately return to the road, as there is almost no dwell time required.

C.H. Robinson provides drop trailer programs that have carried approximately 500,000 power-only loads in 2021 and have averaged over 40,000 available loads over the past four months (January 2022-April 2022).

Maximize gas station savings

Each year, on average, a truck logs close to 120,000 miles of hauling distance. In a survey conducted in 2019 by WEX Inc., twenty-three percent of fleets said that the fuel cost was the most severe operational difficulty they faced.

The current cost environment has resulted in a significant increase in that percentage. Because so much fuel is required, the majority of carriers take part in initiatives that safeguard their profit margins and decrease their exposure to the risk of fluctuating fuel prices.

When utilized in an ongoing manner, these programs can bring significant savings to your operational costs. For instance, C.H. Robinson's Carrier Advantage TM Fuel Card may save you anywhere from $0.37 to $0.40 per gallon, which would amount to savings of over $10,000 per year for each vehicle.

Based on an examination of the prior quarter, fuel savings at TA Petro, TA Express, and savings at participating Casey's commercial stores are estimated to be between 37 and 40 cents per gallon on average. These estimates are subject to change without prior notice.

Final Thoughts

Rising gas prices have significant ramifications for auto transporters regarding operational expenses, reallocation of funds, change of routing, and freight schedules.

Auto transporters can leverage austerity measures to mitigate losses worldwide due to the astronomical fuel price increase.

These measures include minimizing deadhead, reducing dwell time, and maximizing gas station savings. However, there will be added costs regarding time spent implementing these techniques.

A-1 Auto Transport can help you avoid worrying about fuel price fluctuations by letting you lock in an affordable price for your transport needs. Get a free quote today.