Logistics Sourcing: Exploring Fuel Strategies and Supplier Impact

This post is based on material from the 2013 Spend Matters / Procurian research brief: Logistics Category Perspective: Strategies and Trends in Trucking and Intermodal (free, registration required). Contributors from Procurian include Ed Sands, Global Practice Lead-Logistics and Scott Youngs, Logistics Category Management Group Leader. Spend Matters contributors include Jason Busch, Executive Editor, and Pierre Mitchell, Chief Research Officer.

A few weeks ago, I had the opportunity to play a round of golf at the FreeMarkets reunion with a former colleague who has gone on to run fuel sourcing for one of the top trucking and 3PL providers. It seemed that the category was both critical for his organization and not as important for the bottom line as one might think, given that fuel is a pass-through expense for their customers. Fascinating indeed! As we note in the above-linked Spend Matters & Procurian analysis:

Fuel continues to be one of the most important topics of conversation within logistics organizations today – a critical area with significant volatility that must be actively monitored and managed and no longer ignored. The rise of third-party fuel management services such as Breakthrough Fuel and ProMiles are important to understand.

Both companies provide a fuel management service that allows shippers to manage fuel costs more dynamically than ever before. For example, these tools allow shippers to reimburse carriers for actual fuel costs rather than utilizing a national average-based system with fuel rates updated weekly to determine reimbursement rates.

This allows shippers to negotiate fuel and line-haul charges as two separate and distinct cost items, giving shippers the ability to manage their costs with much more precision than before. Changing the fuel program can help break into the opaque cost and margin structure of carriers and level the negotiating playing field.

Energy is a non-trivial percentage of the overall COGs for suppliers. Today, energy costs are 35% of overall transportation spend – and should form a core piece of any type of data analysis effort. They are also especially important in over-the-road transportation, often the largest spending areas for companies. Four or five years ago, business stakeholders could blame the Department of Energy for high fuel costs based on policy and practice. However, today they are challenged to do something about fuel and energy consumption themselves to stay ahead of the competition.

For further analysis of this topic, download the complete Spend Matters and Procurian research brief today: Logistics Category Perspective: Strategies and Trends in Trucking and Intermodal.

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