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SubscribeMay 28, 2008 Distributors Tackle the Rising Cost of FuelBy Lindsay Young | |
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Nearly a third of distributors in a recent survey by Channel Marketing Group and Allen Ray Associates say that increased fuel costs have "significantly impacted profitability" because they can't pass it on to customers. Another 37% said fuel costs somewhat impacted profitability, as most of the increase cannot be passed onto customers. About 22% said the fuel costs have had limited impact, as they have absorbed some but passed most onto customers.
About half of respondents had calculated incremental costs, seeing an increase of 25%-40% over prior-year expenses.
How are they addressing rising costs? More than half are absorbing them. Another 25% say they would like to add a surcharge, but because competition hasn't, they are afraid they will lose business. About 17% say they have instituted a fuel surcharge per delivery.
Strategies to combat fuel costs: using UPS/FedEx/DHL more and charging for freight (more than half); reducing the number of deliveries; changing the delivery schedule; using fuel credit cards to take advantage of rebates; increasing pricing slightly and using courier and delivery services more.
About a fifth say they are using or purchasing more fuel-efficient vehicles. Improving maintenance on vehicles: 16%. Using truck routing software: 11.6%. Just 2% are providing a discount for customer pick-ups. Over 60% of distributors are seeing manufacturer minimum orders increasing as a tool for manufacturers to control their costs.
The survey overview says when evaluating your options to recoup some of your losses, it is important to have confidence that your customers want to do business with you if you want to add a surcharge or increase pricing. It all comes back to the value you provide.
Read the full results of this survey here: Distributors Consider Ways to Address Fuel Increases
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In an industry where the margins are always slim, we are afraid to make sure we maintain a proper net margin. All the examples of everyone doing it to us, but few are willing to explain legitimate business expenses. Management needs to manage profitability. Comment by: Clair Z | 8:36 AM CT May 30
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As an industry it is important that we have a way to recover our costs. The net margin is already too slim. It is important that our first priority is to the profitability of our companies. If we do not recover now we cannot recover later. Comment by: Clair Z | 8:56 AM CT May 30
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Has distributors we add value to our customers by keeping a good inventory ready for shipment , offering credit and delivery services . That’s what we do, that’s why we are entitled to make a profit. If we start charging for delivery , I believe we are not capable of setting up the proper pricing strategy to assure we are still making a profit . Comment by: Claude D | 1:29 PM CT May 30
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Our company has added a minimal fuel surcharge for over 3 years and we have had little or no complaints from customers. I can't believe that others in our industry are so affraid to recoup costs that manufacturers and cartage companies are imposing on us. These rising costs are not covered in the traditional gross profit of our industry. In the current economic climate it is very difficult to increase the selling price of material, however our customers realize that this is not a price increase, and they are doing the same with their customers. It's time for suppliers to wake up and be good businessmen.
Pete M Comment by: Peter M | 7:02 PM CT May 30
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I am excited to hear that my competition is focusing their time/assets on implementing fuel surcharges. Smart/profitable firms will continue to focus on their core business and be smart about properly working with the customer to avoid/offset fuel charges. It is an external factor that no one can control and is the same for everyone. That would be the equivilent to running around spending all of your time worrying about corporate income tax rates. To my competition---Please keep spending your time worrying about fuel surcharges and implementing procedures/addtional invoice line items to capture these. I am going to keep worry about my core business, we'll see who comes out on top---Hint, its not you! Comment by: Mike O | 11:20 AM CT June 2
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While my competition is at it, feel free to add the following surcharges to your invoices...they are basically the same thing.
1. Inflation surcharges
2. Healthcare surcharges
3. Food surcharges
4. Paper surcharges
5. IT surcharges
Keep at it!!! Comment by: Mike O | 12:02 PM CT June 2
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