With diesel and oil on the rise, shippers look for more options

Jeff Berman, Group News Editor -- Logistics Management, 4/22/2008

WALTHAM, Mass.—As the price of diesel gasoline continues to go up at an unprecedented pace, shippers say they are covering new ground when it comes to making decisions about how to manage transportation costs.

To put this into perspective, the United States Department of Energy’s Energy Information Administration (EIA) office said yesterday that the average price per gallon of diesel is currently $4.143 per gallon—representing an 8.4 cent spike over last week’s $4.059, which marked the first time the $4 per gallon average has ever occurred. This current total is nearly $1.30 more per gallon than it was a year ago at this time.

What’s more, the average price of a barrel of crude oil is slightly more than $117 per gallon on the heels of six straight days of increases. And the average price of retail gasoline is $3.503, according to figures released early today by the AAA and the Oil Price Information Service (OPIS). AAA and OPIS also reported that according to their data diesel hit $4.204 today.

The tenuous situation is making it hard for experts to target just how high prices will go and what the future holds.

“It is uncharted territory…I don’t think we are done, but I have to believe we are in the eighth or ninth inning,” OPIS Chief Oil Analyst Tom Kloza said in an Associated Press report.

The ongoing run-up in oil and gas prices has been front and center for shippers, carriers, and consumers alike, and it has resulted in news on a near daily basis. Some recent developments include:

• the April 1 owner-operator truck driver shutdown staged to protest escalating fuel prices;
• the American Trucking Associations calling on the White House to release oil from the Strategic Petroleum Reserve to curtail the run-up, which is hurting the economy and the trucking industry in particular; and
• Presidential candidate John McCain calling for the suspension of the motor vehicle fuel tax between Memorial Day and Labor Day.

With the current situation being so unpredictable, shippers are looking at various approaches to lighten their loads to make supply chain operations more manageable—and without breaking the bank on fuel costs.

“It is creating a renewed emphasis on looking at things like TMS (transportation management systems), which really aligns with reducing freight costs and greenhouse gas emissions,” said Tony Quartarro, executive vice president of supply chain at Burt’s Bees, a Morrisville, N.C.-based provider of personal care and natural skin care products. “This situation also provides [shippers with] a great economic impetus to do good from a people, planet, and profit perspective. We are all trying to reduce the weight we are shipping and how to best optimize it. And by reviewing where your sources of supply are coming from, you can get closer and local and reduce your footprint that way.”

Other shippers told LM that they will consider augmenting how they load packages in an effort to combat fuel costs. They said they plan to look at things like removing package weight and dunnage where they can.

Another option for shippers to consider is considering ways to better manage their fuel “supply portfolio,” according to Rich Cilento, president and CEO of FuelQuest, a provider of Web-based supply chain management and tax automation technologies for suppliers, distributors, buyers, and traders of petroleum products and other energy commodities.

“Fuel buyers need to realize that there are new “norms” in the U.S. and Global fuel marketplace—higher crude prices, tighter or more controlled supply options, and increased price volatility,” said Cilento in an interview. “A fuel buyer can manage at these new norms by establishing a more sophisticated and established “supply portfolio,” leveraging larger and more secure supply options, procuring fuel as far up into the fuel supply chain as possible, as well as managing the costs of acquisition (transportation) and storage (inventories) of the fuel.”

On the political front, Senator Olympia Snowe (R-Maine) introduced the “Diesel Parity Tax Act,” which would lower the federal diesel tax from 24.3 cents per gallon to 18.3 cents, matching retail gasoline.

"Our trucking industry and small businesses are in a crisis and drastic steps need to be undertaken by Congress,” said Snowe in a statement. “The situation for Maine’s trucking industry is simply untenable and we need immediate action to lower the price of fuel for small businesses that are impacted by these historic costs.”