Supply Chain Mess – How High Freight Rates and Fuel Surcharges Are Shaking Today’s eCommerce
November 04, 2022
In this post, guest writer Jake Rheude shares his expert thoughts on the "supply chain mess" of 2022 and the ever-rising uncertainty of 2023.
Supply chain professionals have grown weary of the now-too-common refrain that “uncertainty is the new normal.” The only thing more frustrating is that the ongoing supply chain mess continues to make that platitude true.
It’s probably going to get worse, and we just have to hope it’ll eventually get better.
Defining that “worse” can be tricky, but some common factors drive it. Freight rates, fuel surcharges, and carrier bullwhips continue to build uncertainty for the market.
These were top issues in 2022, and ongoing backlogs at ports plus the threat of rail strikes mean they could be ongoing issues through the coming years. Here’s where the market stands now and what to watch when trying to play for whatever comes next.
Dropping holiday forecasts
After cycles of high freight demand and fuel charges, the bottom may have dropped out on us. FedEx and other carriers are reducing holiday forecasts as eCommerce, and traditional retail volumes fall.
While partners may have warned that peak estimates were too high for some time, carriers needed to keep estimates stable if they would not have enough capacity to handle peak demand. The pain of that last year, for stores and consumers, is still fresh.
The core takeaway from these forecasts should be that every business needs to build a buffer.
Carriers are struggling to create accurate projections. This follows massive overestimates of manufacturers and brands themselves — which you can see in the countless stories about how department stores and brands like Nike have more inventory than they can sell.
Ordering too much inventory was followed by high last-mile shipping costs and uncertain demand now as consumer wallets weakened. It’s a mess; tightening the belt and scaling back will occur across the supply chain.
Look for opportunities to reduce costs and build in additional room for your operations, whether that’s cutting back on inventory, lowering restock levels, using slower delivery options, or finding ways to shift expenses and activities to end consumers.
Local distribution may ease some of this pressure for large markets. That requires complex relationships and parcel management, but it’s likely worth it, at least for high-volume shippers.
Fuel surcharge uncertainty remains
Fuel surcharges are starting to decline, but that was after a year of causing pain. The freight market was tight through the start of the pandemic and only began to soften in early 2022. If it were a normal year, overall costs would follow that downward slope, and shippers would have an easier spring and summer.
As we’ve learned time and again, however, there is no clear “normal” to expect for any supply chain year. High diesel costs, which hit shippers in the form of fuel surcharges from carriers, lasted for months.
Ongoing issues around the Russian invasion of Ukraine and reduced fuel production in other areas worldwide may keep diesel high or make lower costs much less predictable.
Supply chain pressures and tumult potentially played an early role in inflationary rises and spending.
Now, it feels like an ouroboros as inflation and economic troubles could keep supply chain pressures higher than normal. Recovery in the near term is far from certain.
Bigger concerns to come in 2023
The general rate increases (GRIs) that carriers are planning for next year will soon have some of the biggest impacts. FedEx, for example, is planning its highest ever with a 6.9% GRI. The hit compounds many of the other concerns eCommerce companies face because it, like so many supply chain issues, compounds.
FedEx is pairing its GRI with other increases that scale and may make your shipping decisions even tougher. Additional handling surcharges will rise more than 16% on average, covering parcels that are very heavy or very large.
Fuel surcharges from major carriers also appear on the rise, which makes fluctuating diesel costs another headache for accounting and operations.
It’s getting harder for companies to afford the faster shipping that customers demand. The changes in fees and GRIs make it more difficult to predict what your total cost to deliver will be.
Taking an average is easy for some ballpark estimates, but just assuming a 6.9% increase for your orders will fail to capture a variety of expenses. Something as simple as a shifting consumer base may push average orders into farther zones.
While there’s opportunity in 2023, so is the likelihood that your fulfillment costs will get more complex. It’s time to shore up your talent or partnerships and work on creating a better relationship with any carrier you use.