What would you do if you drove to work one day and saw the price of gas had risen by more than 30 cents? You might be tempted to drive less or carpool, but for freight companies operating with fixed rates per mile, it’s an entirely different ballgame. Read on to discover how freight industry pros are preparing for the potential changes that rising gas prices will cause to freight transportation 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 GTA 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 GTA could reach an average of $1.65 a liter, 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 SHIPPERS CAN EXPECT
One freight company official said that freight costs will, at least in part, rise with the price of gas. Because freight transportation is a variable cost for his company, they can’t absorb those costs. He acknowledged that freight companies can plan for rising gas prices, although they may not be able to control them. Freight transportation is extremely price sensitive. If transport rates rise slightly, shippers look for cheaper alternatives and freight companies may not reach their volume targets.
Freight companies can try to mitigate the effects of gas price increases by using fuel surcharges, but freight rates will rise with gas prices so long as supply is not affected. When it comes to freight transportation, there are extremely limited ways for freight companies to mitigate the effects of gas price increases. When fuel prices go up, freight companies must pass the cost on to freight customers.
In the freight industry, what goes up must come down. When gas prices drop, freight companies will be ready to offer more attractive rates. However freight rates aren’t predicted to fall enough to offset the increase in gas prices. So business owners should consider this when projecting yearly expenses for their freight transportation budgets.
THINK OUTSIDE THE BOX TO FIND SUSTAINABLE SOLUTIONS
When gas prices rise, freight companies can expect to see a drop in freight transportation volume. Since freight customers will not want to pay higher freight rates, they will look for alternative means. A great alternative to remain competitive in the market and offer lower freight rates than the competition is to find ways to cut costs elsewhere and with new developments in automation software, this is an option for freight companies and shippers to take control of their own supply chain and lower overhead costs.
The freight industry is highly sensitive to gas price fluctuations. Companies can forecast freight rates next year accurately only if they consider the potential for increased fuel costs. If freight transportation volume is affected by higher gas prices, freight companies need to adapt and adjust business models accordingly. Including adapting outdated business models to the new developments in technology for freight automation and management. Freight Automation software is beneficial for shippers, carriers, and brokers, enabling them to save time and cut costs in administration. This in turn helps to better keep up with economic trends and gas price spikes. Visit these links to learn the best freight automation options available and how to increase your supply chain efficiency.