The Increase in Fuel Costs in Freight
In the face of surging gasoline prices, the response from freight companies differs markedly from the actions one might take as an individual commuter. While personal strategies might involve reducing driving or embracing carpooling, freight industry professionals adopt a unique playbook. This article explores the proactive measures taken by freight companies in anticipation of potential challenges posed by rising gas costs in 2022.
As of January 2022, the average price for a gallon of regular gas is $6.31 CAD/$4.99 USD in Canada and $4.66 CAD/$3.69 USD in the USA. Freight companies planning their budgets must consider how much more expensive gas will be in the later months of 2022.
According to Global Petrol Prices, the average price of gas has risen by forty-four cents in the last 3 months. CBC News reports the Greater Toronto Area gas prices reached a record high as of January 28th 2022 coming in at $1.51 CAD.
McTeague, the president of Canadians for Affordable Energy told CP24: “By the end of the year gas prices in the Greater Toronto Area could reach an average of $1.65 a litre, especially once the federal government’s new Clean Fuel Standard comes into effect in December, 2022. These prices are not likely to come back down.” – (source: https://toronto.ctvnews.ca/gas-prices-in-gta-expected-to-reach-an-all-time-high-friday-1.5757071)
What Can Shippers Expect?
- A freight company official recently pointed out that the price of gas has a direct impact on freight costs. Since freight transportation represents a variable cost for their company, absorbing these increased costs is not a viable option. The official acknowledged that while freight companies can plan for rising gas costs to some extent, the often have limited control over these fluctuations. This is especially critical because the freight transportation industry is highly sensitive to price changes. Even slight increases in transport rates can prompt shippers to seek fore cost-effective alternatives, potentially causing freight companies to fall short of their volume targets.
- To counter the effects of rising gas prices, freight companies often resort to implementing fuel surcharges. However its important note that freight rates tent to rise in tandem with gas prices as long as supply remains stable. In the world of freight transportation, the avenues for mitigating the effects of gas price hikes are notably restricted. When fuel costs surge, freight companies typically need to pass these additional expenses on to their customers.
- The freight industry operates on a cyclical pattern: when gas prices decrease, freight companies are quick to offer more competitive rates. Nevertheless, it’s anticipated that these rate reductions may not be substantial enough to fully offset the increases in gas prices. Business owners should keep this dynamic in mind when projecting their annual expenses for freight transportation budgets.
Find Sustainable Solutions
- With the rise of gas prices, freight companies can anticipate a decline in freight transportation volume., as customers seek more cost-effective alternatives to avoid higher freight rates. To stay competitive in this evolving market, freight companies are exploring way to reduce costs on other areas. Recent advancements in automation software have opened up opportunities for both freight companies and shippers to take control of their supply chain and trim overhead expenses.
- The freight industry is particularly responsive to fluctuation in gas prices. Accurate forecasting of freight rates for the coming year hinges on considering the potential for increased fuel costs. In the event that higher gas prices impact freight transportation volume, freight companies must adapt and reconfigure their business models. This adaptation includes embracing modern technology for freight automation and management, which is revolutionizing the industry.
- Freight automation software offers substantial benefits to shippers, carriers , and brokers. It allowed them to streamline administrative tasks, saving valuable time and reducing costs. This, in turn, equips them to better navigate economic trends and weather spikes in gas prices. For more information on the best freight automation options available and strategies to enhance your supply chain, visit our website Freightnav to learn more