Fuel Prices Go Down... UPS and FEDEX Raise Fuel Surcharges

If there ever was proof that the entire industry's structure of fuel surcharges is just a bunch of smoke and mirrors, this event proves it.  Recently, both FEDEX and UPS announced they are raising the fuel surcharges even though their fuel costs are down by over 30%.  They offer this absolutely absurd argument that it is this way because of the increase of heavier packages going to more retail locations.  Both they claim increase fuel consumption.

Of course, they do not give you a reduction when the new engines provide better fuel consumption or they use CNG vehicles or any of the other many things that reduce fuel costs.

The bottom line is that the shipper should know that even in the truckload and intermodal space industry fuel surcharges in no way have anything to do with fuel.  They are built on false indices, with bad data and the shipper has just had to accept it (unless you use Breakthrough Fuel in which case you are one of the leading shippers who are really taking ownership of your fuel costs).

The argument that FEDEX uses is really laughable.  Watch out as these companies are going to continue to add charges, adjust tables and overall just obfuscate what you pay in packages to justify what appears to be a pretty bloated cost structure.

We will keep an eye on this and report as it continues to develop.

Full Disclosure:  I was an employee and customer of Breakthrough Fuel.  I bring them up because still to this day they are the only company (literally the only one) that appropriately deals with these ridiculous charges.

Energy as part of the Global Bill of Materials

If I told you there was a portion of your bill of materials which could make up 20% -40% of a major component would you want to know what that was?  I hope the answer would be yes and that element is energy.  I heard a person talk this week (A VP of a car company) talk about the "energy it takes to make a car".  The interesting part of his talk is he was not just talking about the plant where the car was assembled.

Rather, he walked all the way back to the extraction of raw materials, through the various "tiers" of suppliers, to manufacturing then to the final delivery of the finished product.  He discussed energy as a component of the BOM and therefore it needed to be managed.

In transportation, people are just now starting to look at this way and the more enlightened managers see this clearly.  If you look at the "bill of materials" for transportation, energy is about 40% of the cost.  Who would ever not manage 40% of the cost of a BOM?

Between emissions and the actual cost of energy it is clear the time is now to manage energy.  Those who say to not manage it or, worse yet, turn it over to the transportation companies just do not understand how important this element is to their costs and to the security of their supply chain.  What element could disrupt the supply chain worse than the lack of energy?

It is time to step up and take control of this and think like that speaker... thing about transportation as you would manufacturing.  Think about what the bill of materials is and what deserves your attention.  40% deserves your attention.

BNSF to Test Natural Gas

Just received a number of alerts about the BNSF testing natural gas. Seems they believe this will be a large opportunity to switch which I fully support.

However, if fuel costs are not adjusted to the shipper then the economics of selecting intermodal over truck will not change. There has to be transparency to this decision and the current dominant fuel cost adjustment mechanism does not do the task well.

The Logistics of Fuel in Post Sandy

I recently read a quote from Boone Pickens where he said there was plenty of fuel but no electricity to pump it. I remember in the Army we had "retail tankers" which could fuel up retail trucks and cars ( and tanks) right from the tankers.

I wonder why we don't have this capability as part of homeland security? Seems this would be core to what is needed during extended times of power outages for whatever reason.

I hope we involve experienced logisticians in a detailed and non emotional review of what can be done to mitigate suffering in the future.

Diesel to $4.14.. Highest since the record setting 2008

Yikes!  Perhaps we will now get serious about alternative energies.  As a reminder, this is not a supply problem.  It is a world market and the price is going up.

Penn Wells Considered Safe by EPA - Fracking Politics

The politics around fracking, the way we are getting natural gas out of the ground, has been somewhat unbearable.  Here is the first time I have read good "science" behind the argument and it looks like the politics were much ado about hype than anything.

Keep an eye on this.  Natural Gas is the way our Country will get off our addiction to foreign oil.  I fully support a strict and detailed EPA enforcement to ensure we do not fix one problem and cause another.  However, I want to also ensure we use science and not politics to solve the problem.

Fuel Prices

The idea of limited oil is an idea which needs to be reevaluated.  As drilling technology gets more advanced it appears oil and natural gas reserves will continue to grow. 

So, why the fuel price increase?  It does not appear to be a result of what normal economics would drive.  It is far more about speculation and fear which is the reason fuel must be managed.  If you are unwilling to take an active role in managing fuel you will generally be subject to the "whipsaw" effect of the marketplace. 

Keep an eye on fuel drilling capacity, production capacity and the import/export imbalances to decide if there truly is a fuel shortage.  Right now the United States is exporting a lot of refined petroleum products.  I am sure this increase will cause the continued move to intermodal and rail movements.  It should not be an all or nothing move however.  A good "multi modal" strategy is one which protects capacity and allows for adaptations to the current economics. 

T. Boone Pickens Responds to President Obama's Natural Gas Plan. A "Victory Lap"

POTUS Pushes for Natural Gas Trucks

For those looking for a single solution to solve the world's problems, this will disappoint.  However, for those who understand it is the proper mix and application of multiple sources of fuel which will solve our need for energy, this will really excite you.

President Obama has made it a centerpiece of his work to incent the movement of Class VIII trucks to natural gas.  This is absolutely the right call.  It is abundant and clean.  Further, the technology is much further along than people realize.  With the announcement of multiple distribution agreements and the build out of NG fueling stations, this is an idea whose time has come.

The question of CNG (Compressed Natural Gas) or LNG (Liquified Natural Gas) is one of application.  Both have a role.  Generally speaking CNG is easier to distribute and does not require the cryogenic freezing of LNG (It is liquified by freezing the NG to -260 degrees F - Read more about LNG here).  However, LNG does allow your truck to go further.  Read:  One is probably great for short haul, out and back type of applications (CNG).  One is better for over the road (LNG).

One drawback to LNG for those who look at the entire distribution supply chain:  LNG has to get to the station via truck.  A lot of trucks on the road to distribute LNG.  So, while the end truck may be powered by clean LNG you have to ask yourself how it go to your distribution point.

CNG moves in pipelines and is compressed at point of use so this issue above does not apply.

I am personally very excited about these opportunities.  We are heading in the right direction for sure thanks to some very daring and exciting people such as T. Boone Pickens and Aubrey Mclendon. 

Predictions on Fuel

Predicting fuel prices is a tough game and one where the house almost always wins.  However, predicting the macro trends with good data and facts just requires hard work.  Derik Andreoli in this article on oil and fuel trends hits it on the mark.  This is a "must read" and a "must keep" as you plan how you will navigate your way through these dangerous and unstable waters in 2012.

Price of Fuel Going Down as Supply Increases? Don't Bet on It.

It is arrogance to assume the US can control the worldwide price of oil and refined petroleum products (PP).  It is also delusional to think the oil companies will do anything other than what is in their best interest.

Practically, what those two statements mean is 1) Petroleum products, regardless of where they originate, will flow to the most economical location - it is fungible.  2) Oil companies could care less if the US is dependent on foreign oil or not (see 1. above).

We now have the interesting situation where US demand for petroleum products (i.e., gasoline) is lower than the supply.  The narrative has been when this occurs, prices will go down and that will spur more demand, a new "market clearing" price will emerge and all will be fine.  Of course, this assumes the US is a closed society and the only thing the oil companies can do (or want to do) is dump the excess oil /PP on the US market.  But, we learn, they have a second option.  They can export it to countries where demand is growing the price is higher.

This puts us into an odd situation: The US is now a net exporter of petroleum products.  The excess supply did NOT lower prices or wean us off of foreign oil.

So, if you are a trucker or shipper thinking all that shale gas and oil will ultimately lower your operating costs you may want to think about a "plan B".  It will merely get exported.

US To Be A Net Exporter of Petroleum Products in 2011

For you transportation professionals who bought into the idea if we drill and produce more oil, prices will go down.  Think again.  This article in Seeking Alpha shows the US will end the year as a net exporter.  Yes, the prices are not going down, the fuel is just going out.

Impact of High Diesel prices.. Get Ready

Owner operators will exit the business, the "big 3" will get bigger, everything will cost a lot more. Get ready.

Impact of high Diesel prices.