Posted On May 29, 2018
Remember back in the good old days when diesel fuel cost less than $2.50 a gallon?
Actually, it wasn’t that long ago. In 2016, the price of a barrel of crude oil dropped to less than $30 for the first time in 12 years. In response to those rapidly declining prices, the Organization of the Petroleum Exporting Countries (OPEC) drastically cut production.
But what about the additional production happening in Texas, North Dakota, and elsewhere?
Although the United States continues to increase its production capacity, that increased production capacity has been more than offset by the OPEC and cuts in other major oil-producing countries.
Though the price of a barrel of crude dipped to $68 right before the Memorial Day weekend after nearing $80 in the prior months and weeks, the effect of production cuts on the cost of diesel has been profound. According to the U.S. Energy Information Administration, at $3.27, the average nationwide price of a gallon of diesel (as of May 21, 2018) is more than $0.73 higher than it was a year ago. The increase has been even higher in some parts of the country, especially on the west coast. In California, the cost of a gallon of diesel is more than $1.00 higher than it was a year ago.
While not as impactful (yet) as the ongoing shortage of drivers and the increasing demand on capacity resulting from a fast-growing global economy, rising fuel prices inevitably have an impact on freight costs. It’s economics 101.
What can you do about it?
To begin with, you can’t control what OPEC will or won’t do. The price of a barrel of crude oil is something you and your shipping department can’t control. It’s just like the trucker shortage. Both are the result of macro-level changes that are almost impossible for any one country—let alone a single company—to control.
The only choice you have is to take a strategic approach to managing your supply chain. You need to reduce costs and increase efficiency where you can, and the Flat World Holdings family of companies is here to help you do that. Our teams at Flat World Supply Chain, Ram International, and Prologue Technology are here to help you stretch your transportation management dollar as far as it will possibly stretch. Our industry-leading technology and team of supply chain experts are here specifically to help you navigate challenges like increasing fuel costs and capacity shortages—because frankly, if managing supply chains were easy, you wouldn’t need us.
The price of a gallon of diesel may eventually get back to 2016 and 2017 levels. No one knows for sure. The only thing we do know is that supply chain management is constantly evolving, in large part because your supply chain is constantly being impacted by developments outside of your control. Change is constant, and a proactive, strategic approach to transportation management will always deliver better results.
In the short run, we are all feeling the effect of increased oil prices—but in the long run, having a supply chain strategy and a partner to help you implement that strategy will help you manage the increasing cost of fuel, as well as a whole lot of other challenges.