US supply chains all at sea over fuel costs

High fuel costs are affecting how US manufacturers and logistics companies manage supply chains with some businesses looking to boost use of rail and sea transportation.

That is the conclusion of a major new survey released this week by transportation industry watchers Eyefortransport, which found that more than a third of manufacturers are looking to overhaul their supply chains in response to spiraling fuel costs.

The report, The Impact of High Fuel Prices on the Logistics Industry Report 2008/9, claims that rather than the traditional approach of pushing goods through the supply chain as quickly as possible and minimising stored inventory, an increasing number of businesses are opting to increase stock levels and transport larger loads at one time.

"For years, logistics executives have focused on minimising inventory costs by moving goods through the supply chain as quickly as possible," the report stated. "Now rising fuel costs are making some companies think about keeping more inventory on hand."

The researchers also claimed that logistics companies are investigating alternatives to transporting goods by road as a way to avoid some of the impact of rising fuel costs. "Short sea shipping and moving freight along coasts and inland waterways is proving to be a very strong alternative for the logistics industry," they stated.

In addition, companies are looking to take advantage of so-called " near-shoring" whereby they source partners and suppliers that strike a balance between having lower wages, but are also near enough to avoid high transportation costs. "Companies are looking for the next low-cost countries which [are] close in distance [and] will allow them to boost their profits by avoiding the fuel price dilemma," according to the report. For US firms, this means partnerships with Mexican and South American manufacturers are beginning to look more attractive compared to deals with Indian or Chinese operators.

Around half of the respondents also believed that improving the use of IT and information management systems could help counterbalance volatile fuel prices. However, one respondent displayed the pessimism afflicting many supply chain managers, observing that "nothing can counterbalance out-of-control fuel costs" .

In related news, a separate report into the impact of rising fuel prices on US drivers has revealed that there has been a major drop in road-accident fatalities this year which researchers claim is attributable to a change in driving habits due to increased petrol costs.

Research carried out by the University of Michigan revealed that motor vehicle deaths plummeted 22 per cent in March and 18 per cent in April.

"It appears that the increased cost of gasoline has finally begun to influence driver behavior both in terms of the amount and type of driving," said University of Michigan research professor Michael Sivak. "Consequently, one of the indirect benefits of the increased cost of gasoline – in addition to, for example, a reduction in emitted CO2 is likely to be a decrease in motor vehicle fatalities."

The research also indicated that rising fuel costs would have the biggest impact on the behaviour on low-income drivers such as teenagers and the elderly who have a much higher accident rate than other drivers.