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There is no surprise here – fuel costs have gone up and we are all feeling the effects.  Whether it is the weekend drive to the beach or that truck shipment of methacrylate, we are all paying a lot more at the pump.

 

Escalating Price of Fuel

  

For 4 years now, I have talking about the hockey stick effect of logistics costs hitting the chemical industry – by tracking the transportation costs released by the American Chemistry Council, it was apparent that the costs were just starting to increase 3-4 years ago mostly due to the capacity shortages of truckers and service providers.  Today, there is ample capacity of truckers (which is the good news for shippers), but the fuel cost increases have been unprecedented.  More carriers are simply closing their doors because they cannot compete on such thin margins (for example, Jevic).  As more carriers exit the market, capacity will once again tighten and transportation costs will leap again (which is bad news for shippers).

 

Most shippers have not applied the same Six Sigma methodologies to their transportation processes as they have applied to their manufacturing processes at the turn of the decade.  The chemical industry is starting to take a fresh look at their outsourcing arrangements, what they expect from their LSP’s, and what they expect from their internal organizations.  Some technology providers (such as SAP) have kept up with this trend and started developing software that is truly service enabled and extends the value of the ERP investment (which is good news for shippers AND for service providers).    This rages a tough debate – what do I expect from my LSP, should I turn to a Best of Breed vendor that specializes in transportation/logistics, or should I further invest in my ERP vendor that has extended functionality into logistics?

 

Consider that your LSP is not a software provider and has most likely not invested in developing enterprise services.  Consider that many Best of Breed vendors may be acquired (which is not necessarily a bad thing), some may go the way of Jevic, and others may focus on particular industries.  And you can draw your own conclusions about your ERP vendor…

 

There are many things to consider and I would love to hear your thoughts and comments.  I can assure you that transportation costs will continue to rise and as a shipper you will need to do something differently in order to maintain a competitive edge, and it will most likely involve technology from some vendor. 

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4 Comments

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  1. Monica Gassmann
    Ray, interesting blog. I have read that Dow, among others will be raising prices up to 20% for all products due to this incredible rise in transportation costs as well as energy and feedstock costs. I would be interested to hear from some LSP’s on their strategy for staying competitive in this difficult situation which will likely get worse before it gets better.
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    1. Stefan Guertzgen
      The interesting thing about this situation is also that LSP’s and/or Chemical Manufacturers which optimize their shipments, assets and routes through stronger collaboration in response to these ongoing fuel price increases not only can expect significant cost savings, but can also look forward to enhancing their carbon footprint and finally to increasing company and brand reputation. As a study from Arthur Delittle recently revealed – Companies with demanding goals in emission reduction (“carbon winners”) show a 20% higher stock value at the average.
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      1. Raymond Adams Post author
        It’s true that best in class companies deploying a combination of technology and process improvements can (and are) actually lowering their overall transportation spend.  As for the carbon footprints, I am alittle more cynical on whether companies actually have that as a goal or are simply very effective at spinning their stories to be more green. 
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    2. Raymond Adams Post author
      Dow has also posted an across the board shipment surcharge of $300-$500 per shipment.  I think the LSP’s are charging  base plus fuel sur-charges in order to survive.  For those who can’t pass along the increases, well it doesn’t look good.
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