To which extent logistics organisations will be impacted by the oil price escalation?

This is a serious risk supply chain managers are going to face! Most of supply chains rely on road transport, since road haulers are for shippers the most trustworthy mean to ensure just in time deliveries. Yet, with the current oil price escalation, shippers will have to take a new look at their organisations.

Over the 1997-2003 period, barrel price was $30 on average. Early 2008, the price went over the symbolic threshold of $100, after a five-year, 350% increase (average 2003 price was a little bit under $30 per barrel). Fortunately, European countries have so far taken advantage of two factors that substantially reduce impacts on road transport prices: the devaluation of the dollar compared to the euro, and the relatively high level of taxation on fuel prices. In France, a financial device (the well known Taxe Intérieure sur les Produits Pétroliers or TIPP) has been set up to partially refund road haulers for every litre of oil bought. Also, another program has been set up to force hauliers’ clients to bear the overcosts due to fuel price continuous increases (with financial penalties if it is not applied): its actual success is however discussed by road transport companies. From United Kingdom’s hauliers viewpoint, this approach is even considered as a stepback to a price-controlled situation and is, as a consequence, not really welcomed.

Given that for French hauliers, gas consumption accounts roughly for 25% of total operation costs (26% for long-haul and 10% for short-haul), supply chain managers are getting more and more concerned by the fuel price escalation. Furthermore, the prospect of the implementation by 2011 of a per-kilometer tax on the entire French network, and traffic congestions observed on specific sections of French roads, are two other gloomy aspects for supply chain managers who rely on road transport.

Oil price increases, the end of an era?

So, are we going to see the end of cross docking operations? Is the end of long-haul approaching? Some, who are very concerned with the oil price crisis, do think so and foresee that organisations with big distribution hubs will disappear to be replaced by multi-plants organisations. This preoccupation is particularly strong for industries generating heavy traffics (e.g. beverages and construction materials) because transportation of such goods can quite often represent more than 10% of their turnover. In these specific cases, some say that production of goods in several plants country-/worldwide would me more efficient and profitable, because it would minimize the distances traveled.

It might be true … Nonetheless, this thinking is quite limited since it does not take into account all required parameters (energy consumption of plants and warehouses, payroll, machinery, etc.). In addition, several prospects are likely to bring some better hopes for road haulers. For instance: the European authorisation to operate heavier and longer trucks as Dutch recently approved (see References from the Transport Information Group below).

Also, with the fuel price rising, there are more scopes for collaboration amongst shippers. This solution is a pertinent response to fuel issues and is very likely to be developed in the future, since all experimentations that have been run turned out to be very successful. Last but not least, let’s give a chance to Fret SNCF to develop, in the forthcoming years, some offers that match shippers’ expectations by providing operations on relevant railway paths and running reliable trains…

References

  • Article: les stratégies logistiques menacées par le prix du pétrole, Logistique magazine, n° 228, May 2008: paper edition
  • Article: France will enforce haulage surcharges, IFW, May 30, 2008: paper edition

References from the Transport Information Group

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