G ift-giving season may have visitor. Not the Grinch, but in ation. Prices have been on the rise since early 2021. In April, the consumer price index expanded by 4.2% annually, according to the Bureau of Labor Statistics. That gure rose to 8.9% growth 18 months later in September 2022. Price growth varied among particular commodities—in May 2022, for example, the cost of bacon averaged 18% annual growth, orange prices rose by 17%, and used cars were up 23%. In ation isn’t inherently undesirable for an economy. Historically, the Federal Reserve has aimed to keep prices accelerating up to 2%. concluded, but for many people it was plagued by an unwanted The trouble starts when price growth advances much faster than 2%, as has been the case in the U.S. economy for nearly 24 months. To rein in excessive in ation, the Federal Reserve raised interest rates to 4.25-4.5% throughout the course of 2022. These circumstances have particular rami cations for the supply chain, especially transportation costs. ENLARGED EXPENDITURES A con uence of factors—from wages to materials to driver shortages—drove up costs over the past two years. One of the primary ones was diesel prices.
different type of transportation network. “Deliveries skewed heavily into parcel,” he adds. “That’s an expensive service to begin with, and then network capacity got stretched to the limit.” Already notoriously expensive, momentum toward parcel caused prices to accelerate even more rapidly in 2022. Both FedEx and UPS increased base shipping rates by 5.9%. That trend will continue into the new year. In October 2022, citing an “in ationary backdrop”, FedEx and UPS each unveiled plans for a 6.9% rate increase in 2023. Meanwhile, in November, the U.S. Postal Service announced that it would follow suit, raising prices from 5.1% for Parcel Select shipping, to 7.8% for its First Class Package service in the coming year. “That’s without any additional surcharges,” notes Josh Dunham, CEO and co-founder at Reveel, a shipping intelligence platform headquartered in Irvine, California. “An over-maximum limit charge, for example, might run upwards of $1,000 per shipment.” THE EXPENSIVE FINAL MILE To compound the nancial pressure, parcel shipping often entails nal- mile delivery, explains Nick Brown, director of supply chain solutions at enVista, a software and consulting rm headquartered in Carmel, Indiana. Not only does the last transportation leg generate a signi cant portion of shipping expenses, but promises of free shipping can make it dif cult to transfer those costs to the end consumer. Accessorial fees have pushed rate increases above 10% for Reveel’s customers, according to Dunham. He recommends negotiating with carriers to tame parcel shipping fees. “It’s critical to focus on areas with the most spend,” he says. “One big mistake we see is shippers hammering carriers for a discount that only impacts 2% of their shipping pro le.” Rising transportation costs have coincided with demands for fast shipping, and not just from consumers.
The cost of diesel rose 55%, to $5.81 per gallon, on average, in the rst half of 2022. While most consumers struggled to absorb higher gas prices, executives tasked with purchasing logistics services had the additional headache of preventing fuel surcharges from bleeding into the price of other products. “We’ve had clients spend more than $5,000, just in fuel, to move goods from the Midwest to the West Coast region,” says Jeff Pape, senior vice president and director of product and marketing for transportation at U.S. Bank. COSTLY REPAIRS Ballooning prices didn’t just impact the cost to keep a vehicle running. They also bled into the price of repairs and replacements for vehicles, which pushed up costs for carriers, notes Ann Marie Jonkman, senior director of global industry strategies at Blue Yonder, a supply chain software company based in Scottsdale, Arizona. But it wasn’t just inputs that pushed up prices. As online shopping rose in popularity, transportation networks had to shift to meet demand. “We weren’t ready for it,” says John Haber, chief strategy of cer at Transportation Insight, a third-party logistics rm based in Hickory, North Carolina. “The overall pro le of the consumer changed, and that creates a
Shippers should be aware of how changes in lane density and utilization might lead to longer wait times and fewer trip miles for their core carrier drivers, which can impact long-standing carrier relationships and vital capacity.
204 Inbound Logistics • January 2023
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