The declining price of oil (just under $60 a barrel as of today) has been a hot topic recently and a wide range of analysts are coming out of the woodwork with prognostications on where the price is headed and for how long.
While all these so-called “experts” offer their insights, one needs to weed out all the noise and take a close look at the shipping and fuel surcharges you pay to your suppliers.
Since the price of gasoline has dropped nearly $1.00 per gallon (for regular gasoline) in our region in the past 6 weeks or so, has the price your business pays in fuel surcharge prices from your suppliers dropped approximately 30% as well?
Consider, for example, your supplier uses UPS for shipping and the price UPS charges them for shipping to your business is $10,000 per order. Now, if UPS drops the rate they charge your supplier by 30% to $7,000 is your supplier also dropping their shipping rate to $7,000 as well or are they still charging you the rate of $10,000? The obvious answer is, “it depends”.
As a purchasing professional, have you negotiated terms with your supplier regarding shipping when the price of fuel increases or decreases? Now, you very well may have a negotiated agreement in place regarding a shipping price decrease in the event you begin purchasing a greater quantity of items form a supplier. However, shipping price decreases may have been ignored because one may typically assume the price of shipping would never decrease, only increase, unless there was a change in the quantity purchased.
One point in all of this that catches my attention is when the price of gasoline rises. At the mere mention of an attempted attack on a pipeline in the Middle East or severe storms in Louisiana, the price of gasoline instantly rises (even though the price for the gasoline in the holding tanks in the ground was purchased at a lower rate). In these cases, unless you have specific shipping fuel surcharge prices negotiated and contracted with your supplier, typically the buyer gets the bad news in regards to fuel increases.
Remember, it is never a bad time to call your suppliers. Even if your suppliers are hesitant to discuss a decrease in shipping surcharges, there are other options you can explore such as more advantageous payment terms or shorter lead times. Remind your supplier that you are looking to make it a win-win situation for both parties.