Why Logistics is important in today’s economy – Part 3
Our latest blogs have looked at how the logistics sector is vital for the country’s financial success and how it has contributed to the UK’s non-financial business economy.
We have looked at how the government supports the industry and what the future looks like for the logistics industry.
Like most companies in today’s economy, they must ensure they can cover the cost of running their business. This can include professional fees, insurance, staffing, equipment and supplies.
Throughout this month’s blog, we will explore the current challenges for the logistics industry due to rising prices and inflation.
I’m sure we agree that we have all experienced the high fuel cost at the moment – it has gone beyond the normal fluctuations in fuel markets. It’s not unusual for the logistics industry to be aware of how fuel prices change, but what impact do the current prices have on the HGV and logistics industry?
What Are the Rising Costs?
The gov.UK reported that the UK average diesel price for March 2022 was 170.49p per litre. Comparing this to March last year, where the average price was 128.12p, it is an overall percentage difference of just over 33%. The 33% increase makes a huge difference to HGVs.
The increase in fuel prices has been slowly increasing since 2018, but it’s causing a problem in the economy because the fuel cost has reached a historical high!
This can cause a ripple effect throughout, meaning that the cost of goods you buy at shops or online will also increase in price. Businesses will need to factor in supply chain costs, which means that logistics businesses will need to alter their charges due to increased fuel prices.
What is the reason for rising fuel prices?
In summary, the Ukraine invasion by Russia has significantly affected the supply chain industry. With Russia being the largest exporter of natural gas and one of the top suppliers of crude oil, they supply a third of Europe’s demands. With the current situation, there are many fears that the oil sector will be targeted and the supply will decrease.
What are the challenges?
The increase in rising fuel costs creates a few challenges for the logistics industry. When the fuel price escalates, many logistics businesses either raise their prices or suffer financial losses. But it’s not just fuel prices that are increasing. We have witnessed over the last year, energy prices are on the rise, Interest Rates from the banks are slowly creeping up as well as raw materials are increasing in price. All these factors have a huge impact on many businesses.
There is a combination of factors as to why these prices are on the up and it is not only the U.K who are affected by this. The factors are international:
- The cold winters takes a toll on the gas prices
- Russia have cut their supply of Gas to Europe – this impacts the wholesale prices
- The Wind-generated power has been impacted by the relatively calm weather.
- The UK generates 35-50% of its electricity by burning gas, so any changes in gas prices also hit’s the electricity rates.
However, it’s not just international factors, it is also local factors. We are now living in a post-covid world and there is still a huge demand for oil as the economy keeps growing. Due to a combination of Brexit and Covid, the distribution of petrol has been a concerning issue in the UK due to the shortage of HGV drivers. The lack of HGV drivers has been noticed by the government, as they announced they have a plan to fix these supply chain issues and boost the economy.
As mentioned before, this causes a ripple effect. If there is an increase in fuel, energy, raw materials, interest rates and labour, then any business would need to ensure that they can cover these costs. These costs are eventually passed down to the consumer, potentially leading to customer dissatisfaction.
So, what can Masters and other Supply Chain businesses do to protect themselves?
The logistics industry is used to fluctuations in fuel prices. Most supply chains will have failsafe strategies to protect themselves by minimising transportation costs.
The various strategies include identifying areas for improvement in operations to boost efficiency and reduce internal costs, transportation distance for goods to reduce fuel consumption and focusing on single sourcing.
The situation regarding fuel prices is a tough challenge for the logistics industry. But Masters have strategies implemented across the business to prevent the damage and see through this challenging economic environment.
We believe in offering our customers value for money and efficient and reliable service.
We review our fuel surcharge rate to match current fuel prices; when fuel prices drop, your surcharge also falls = a fairer deal for you!
Re-evaluating our surcharge twice a month, once at the beginning of the month and a second review in the middle of the month. Just one more thing we do to help our customers.
If you want a hassle-free, professional and trustworthy partner, then Masters are here to help.