Impacts of Fuel Price Increase on Logistics and End User - Assignment Example

The researcher states that over the past decades, logistics executives tried to cut down inventory costs by moving the goods as fast as possible through the supply chain. However, growing fuel costs changed the whole scenario, and hence today companies tend to keep more inventories on hand. In addition, organizations consider shipping larger loads and increasing buffer stocks as two potential ways to fight mounting fuel prices. Reports indicate that companies are relying on more fuel-efficient modes of goods movement such as rail and water in response to rise in fuel costs because those transportation facilities are beneficial to ship larger loads and to reduce congestion.

In addition, the logistics industry focuses more on short sea shipping and moving freight along inland waterways to mitigate the adverse effects of growing fuel prices. The drastic increase in inventory costs is a direct impact of rising fuel costs. Increased product density is another major consequence of hiking fuel prices in the logistics industry. Logistics sector would be compelled to establish central warehouses when fuel prices increase constantly. Companies may be forced to depend more on in-sourcing in order to trim down logistics costs, and the situation, in turn, would drive changes in warehousing and distribution.

In the worst case, firms may consider relocating their production at customer plant sites to reduce transportation costs or near-shoring to achieve optimized inventory levels. In the context of increasing fuel prices, logistics departments of competing firms may operate collaboratively to cut down unnecessary transportation costs. Gross, Hayden, and Butz point out that adverse increase in fuel costs over the past few years have resulted in the optimal degree of centralization of logistics networks.

The authors add that the optimal configuration of logistics network is greatly influenced by varying fuel prices.