This time last year, Pat Moffett looked at the world differently. As vice president of global logistics for electronics seller Audiovox, he moved goods from Asia by sea to West Coast ports, then by truck to East Coast distribution centers.
Now, given record fuel prices, those goods will move by sea all the way, via the Panama Canal. Moffett will wait four to five days longer to get them, but he'll save $1,500 per container on transportation costs, or about $100,000 a quarter. That's hardly chump change for a company whose latest quarterly profit was $4.7 million.
"It's a ton of money," Moffett says.
Audiovox's focus on transportation has always been intense as it, like other companies, seeks to minimize costs and boost profits. But with the unprecedented run-up in fuel costs, many companies are changing operations to soften the blow, especially if they can't pass increases on to customers.
Along with altering shipping routes, companies have slowed trucks to boost gas mileage, stepped up tire-pressure checks for the same reason, combined deliveries and deployed technology to improve routes — to the point of avoiding left turns because waiting for lights or for traffic to pass can consume more fuel than driving alternate routes.
Every efficiency is a brake on rapidly rising fuel costs, up 22% for gasoline since last year and up 46% for diesel.
For Waste Connections, a waste-hauling business with almost $1 billion in revenue last year, fuel costs now run 8% of revenue, up from 2.5% in 2005, says CEO Ronald Mittelstaedt.
Every efficiency is also a possible edge over rivals. "When costs increase for everybody, you get a huge competitive advantage if you do something just a little bit differently," says Z. John Zhang, professor of marketing at the Wharton School, University of Pennsylvania.
Truckers and airlines have been especially hard hit. Airlines have raised airfares 10 times since mid-December, often because of fuel costs. Last month, independent truckers nationwide slowed deliveries to protest gas prices.
Kerns Trucking of Kings Mountain, N.C., using computer chips that limit the top speed of trucks, recently cut the top speed for its long-haul trucks to 65 mph. That's down from 72 mph last year.
To win over drivers, Kerns Vice President Doug Prestwood amasses statistics, including one showing that a bump from 65 mph to 70 mph cuts fuel economy by 8.2%. "That's a lot of money per week," says Prestwood.
Delivery services FedEx and UPS said in recent earnings reports that they've successfully passed higher fuel costs on to customers. Others haven't.
Last month, Currier Trucking of Gorham, N.H. — unable to get higher prices from struggling paper mill customers — parked half of its 50 semi-trucks because the company was losing $1 a mile making deliveries, says fleet manager Jeff Webster.
He speculates that rivals who picked up the routes Currier dropped are sacrificing profits for market share. "We're not big enough to sustain losses like that," he says.
Increasing efficiency boosts savings
Big companies in the lead of the ground-freight-moving business, such as J.B. Hunt Transport Services, UPS and FedEx, have long focused on fuel costs and used such tools as sophisticated software and Global Positioning Systems to optimize routes.
Now even smaller companies — and those not specifically in the freight-moving business — are focusing more on fuel.
They're making changes by: