A Mid-Year Review of Shipping Costs

Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on delivering savings in the areas of IT, telecom, transportation and energy.

For many manufacturers, suppliers and retailers, the first half of 2011 has been interesting (to say the least). On one hand, it's been defined by higher production and cautious optimism. On the other, it's been marked by a volatile economic and political environment that has made the cost of doing business difficult to anticipate.

A mid-year look at the factors driving shipping costs demonstrates the unpredictable nature of the current market:

U.S. Economic Concerns: The domestic economy has left many supply chain professionals nervous about the immediate and long-term health of their markets and their businesses. Debt concerns and ratings, as well as a weak dollar have compounded these concerns as consumers and businesses fear a prolonged economic recovery.

Mideast Tensions & Rising Fuel Costs: The price of fuel remains volatile and high due to the ripple effect of Mideast tensions. Many large suppliers and manufacturers are instituting their own emergency fuel surcharges, while others are raising the cost of goods and services at the end-consumer level. Those that can't pass on these cost increases are feeling the financial impact of this strain.

Natural Disasters: Earthquakes, tornados and flooding have created serious disruptions to supply chains across the globe, especially those relying on Japanese production. Many U.S. companies lost access to critical suppliers and trade routes in a historic tornado season. As we approach hurricane season, there is mounting concern about how American supply chains will fare with increased risk.

Capacity Concerns: With fuel costs at an all-time high, many shippers are turning to railroad companies to move their goods across the supply chain. However, container shortages threaten many of the efficiencies offered by rail. Rail container production has been lagging, creating a decrease in capacity. This may eventually drive up the cost of railroad shipping.

Our conclusion? Today's supply chain organizations need more aggressive spend management to reduce costs and mitigate risk in shipping. Traditional tactics like invoice auditing and refund recovery are great ways to cut shipping costs, but that's not enough. The complexity of today's shipping environment requires new tactics to lessen the impact of industry, political and economic forces on corporate spending.

-- John Haber, EVP of Transportation, NPI

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