Transportation buyers feel sting of fuel prices
A look at some solutions being tried to ease the pain.
By James P. Morgan -- Purchasing, 7/15/2004 2:00:00 AM
Reports of fuel shortages, delivery delays, and rising fuel prices have been running rampant across the industrial scene for the past six months. Until recently, such reports have been treated with relative calm but projections for the second half of 2004 are beginning to rattle the calm of many purchasing and supply chain managers.
This point is confirmed in a just-completed Purchasing magazine poll of purchasing and supply managers across the country. While the numbers are less than threatening, they paint a picture that has a fair number of buyers and planners a bit edgy. Many are beginning to see an array of real and potential "little" problems that could very easily turn into serious problems, specifically affecting purchasing as well as the U.S. economy overall.
In Purchasing magazine's latest poll, 47% of all respondents reported that their companies have been experiencing significant transportation problems and rising freight bills over the past six months or so. On the other hand, 49% say they have experienced few or no transportation problems over the same time period—hardly a catastrophe in the making.
Big problems yet to come
In a follow-up phone survey where participants were specifically asked about problems expected over the next six months, there was a serious jump in the numbers. Nearly two-thirds of polled purchasing and supply professionals are now projecting serious problems with their transportation buy in the third and/or fourth quarters.
Typical complaints involve inbound freight fuel surcharges and outbound gas and diesel prices. But it's not just freight rates that have purchasing executives concerned, says Robert Hooper, maintenance purchasing manager at Hirschfeld Steel in San Angelo, Texas. "Steel prices are what are really killing us," he says, noting that fuel prices are impacting material costs.
Hooper's complaint is seconded many times over by poll respondents. For instance, a buyer for a central New Jersey metalworking company also complains that the fuel pricing situation is getting progressively worse. In fact, he notes that prices on a whole string of raw and semi-finished goods appear to be on the move—partly, but not exclusively, the result of fuel-related problems.
So far, the effect of cost escalation on the transportation buy has been relatively light, but most poll respondents are pessimistic about the next quarter. Ray Klamn, director of operations at Page Edwards in Centralia, Wash., says he hasn't seen much cost escalation in the first half of the year, but he expects a rise in the next two quarters.
Many causes listed
Of those expecting major transportation problems in the next six months, around 78% blame oil prices as the major culprit. However, many also indicate that there are other forces at work. For instance, Bernard Berman of Ventamatic, suggests that carrier profitability needs to be examined more closely. Richard Loeschner, transportation manager at St. Louis-based Astaris, says security, fuel, hours of service and supply of trucks are all potential reasons for increases in freight rates. Jim Kent, manager of transportation services at Chicago Tube and Iron, places much of the blame for rising transportation costs on recent changes in regulations governing work hours.
What actions, if any, are purchasing/supply managers taking to control freight costs and maintain quality of shipping service? Jack R. Travers, manager of North America freight and transportation for Givaudan Fragrances, Mount Olive, N.J., is hoping to ride out current pressures on freight charges via the use of national contracts with a core carrier base.
A fairly popular approach for many purchasing professionals is use of volume as leverage. In the words of one Massachusetts purchasing manager, the emphasis is on "retaining reliable and proven service and working closely with our most reliable, consistent freight carriers. Where practical, we are trading volume for price stability. Ultimately, though, our success will depend to a great extent on the ability of the U.S. to contain inflation."
Pete Klahorst of Shape Corp. in Grand Haven, Mich., says he will put a great deal of effort into "leveraging the spend and consolidation of carriers." Pace/Edwards's Klamn is researching third party logistics providers and looking at the possible reduction and/or elimination of multiple ship relationships. A number of purchasing operations plan to emulate Dick Williams, materials/purchasing manager at Kinco in Jacksonville, Fla., and drive greater consolidation where possible.
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