Project Management

Winter's no wonderland for shipping costs

It's a domino effect: A harsh winter will send fuel costs skyrocketing, which leads to increased shipping costs. How should consultants and resellers plan for such a threat?


In recent years, it's been safe for the IT industry to ignore weather conditions, something that other businesses have long considered important because of bad weather’s effect on fuel prices. Perhaps the past few mild winters have lulled us into complacency—but experts warn that those warmer-than-normal winters are an anomaly.

Now, after a year of increasing crude-oil prices, IT consultants—and resellers in particular—need to start considering the potential impact of increased shipping costs on their businesses. And according to recent predictions, this winter's weather could certainly be a factor. In this article, we’ll give you some tips to help you weather the shipping storm.

A high price to pay for on-time delivery
At this writing, diesel fuel costs an average of $1.629 per gallon, according to the American Trucking Association. That 18-wheeler carrying your next shipment burns up about one gallon per mile, so the increase from $1.21 last September—more than 40 cents—must have some impact. In fact, the ATA is pushing a bill that would allow more shippers to add fuel surcharges so they could reimburse small trucking companies and independents for hauling their goods, and House Transportation and Infrastructure Committee Chairman Bud Shuster (R-PA) called for the bill's approval. The bill hasn't been passed by the Senate, but expect more action after the election. (Note: ATA's president, Walter B. McCormick Jr., is no relation to this columnist.)

Similar efforts to offset rising fuel costs are underway throughout the shipping industry. United Parcel Service has already imposed a 25 percent surcharge for most users, and many big suppliers—including those that provide goods to resellers—are currently either eating the extra costs or passing them on to buyers. If you’re lucky enough to buy from suppliers, such as Ingram Micro, that have long-term shipping contracts that insulate them—for the time being—from rising fuel costs, you probably won’t feel the effects right away.

But this situation can't last forever. Eventually, your suppliers will have to begin charging more due to their increased shipping costs, and if it’s a bad winter in the Northeast United States, costs could really soar. The Northeast uses more heating oil than other regions, and at oil refineries, there’s very little difference between heating oil, jet fuel, and diesel fuel for trucks and trains. Transportation oil prices are affected by cold winters even more than gasoline prices, and this year’s winter is expected to be colder than the previous two.
According to the National Oceanic and Atmospheric Administration (NOAA), winters in the 1990s were the warmest on record. This accounts, in part, for the relatively steady oil (and thus shipping) costs. But it's well-known that trends such as this often last only 10 years or so, and periods of unusually warm temperatures are often followed by similar periods of extra low temperatures. In this case, because the past three winters were exceptionally warm, even normal average temperatures this winter will be considerably colder than in recent years. NOAA’s current official outlook for this coming winter calls for significantly colder conditions—six degrees on average—which could cause more snow in the Northeast.
Weathering the storm
As the old saying goes, "You can't do anything about the weather," but this year—for the first time in a decade—you'd better do some contingency planning.

If your firm, a major client, or even a major supplier, is located in the Northeast, and your work includes on-site services—especially in the case of an emergency—your contract probably has a penalty clause. If not, it might be time for you to look into weather insurance.

Even if you live in a warm region and a bad winter doesn't affect you directly, a cold-region client’s increased shipping costs can, in turn, affect you. But there are some practical things you can do to protect your business if you either ship products or rely on products shipped to you:
  • Switch to a supplier with lower shipping costs.
  • Try to negotiate a fixed shipping cost for your goods. This will probably not be possible, as most shipping companies increase their rates across the board, but you can give it a try. Also, negotiate fixed-cost contracts with vendors to protect yourself from increased shipping costs.
  • Increase inventory. Just-in-time shipping saves a lot of money, but there are times when you need to bulk up your inventory. Treat this winter like you would a potential Teamsters' or even independent truckers' strike.
  • Increase lead time on orders, in case bad weather delays deliveries or truckers go on strike to protest high costs.
  • Develop a "severe winter" plan for getting critical personnel to the office. This is particularly important in places like the Washington, D.C., Beltway area, where even an inch of snow often brings traffic to a halt.
How does your firm deal with adverse weather conditions? Are you planning ahead for a bad winter that could delay your shipments? Post a comment below or send us a note.

Editor's Picks

Free Newsletters, In your Inbox