Fuel volatility puts automotive logistics costs under the microscope

Fuel has always been one of the biggest variable costs in road freight. What has changed is the degree to which its volatility is influencing decisions across automotive supply chains, from carrier negotiations and route planning to trailer utilisation and even the location of warehouses and distribution centres. 

For automotive logistics, the issue is particularly acute. High freight volumes, tight margins and just-in-time production mean relatively modest movements in fuel prices can translate into significant changes in annual transportation expenditure. 

Vignesh Jairaj, supply chain strategy leader at Asahi Kasei Plastics North America, describes the current environment as “tumultuous”.  

“Fuel prices have become much more visible and unpredictable in recent years,” he told Automotive Logistics. “I think there is also greater awareness now, not just within transportation and supply chain, but among the general public also of how fuel prices affect the cost of goods and everyday expenses.” 

Nikola Delic, founder of EVE International Logistics, says he expects fuel prices to continue to be a problem for the near future. “I think we’re going to have a very turbulent end of year, especially around Q4,” he says. “It will be interesting to see how that’s going to affect the broader market. Hopefully, fuel prices will stabilise, but we don’t know. But we expect elevated prices through the end of the year.” Delic adds that tight capacities could also create additional problems for carriers.  

For automotive supply chains, making themselves less exposed to the next swing in pricing is now a priority. 

Automotive's exposure to fuel volatility 

Automotive freight has characteristics that can amplify the impact of fuel-price movements. The scale of operations makes a vast different, as a small change in the cost of operating one truck over one lane, multiplied across thousands of shipments, with multiple suppliers and global production networks, means a much bigger financial issue.  

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“Automotive combines tight margins with high transportation intensity, frequent just-in-time shipments, and a very high volume of freight,” says Jairaj. “Because of the number and frequency of shipments across the automotive supply chain, even relatively small changes in fuel costs can add up quickly and have a meaningful impact on overall transportation spend.” 

Jairaj estimates that during periods of particularly high fuel prices, fuel alone has accounted for around 35% of the total transportation cost on some lanes. 

“Today, I would put it closer to 25–30% in many cases,” he says. “That is still a significant portion of transportation spend, and for a large automotive network moving thousands of loads, even small changes in fuel costs can add up to a substantial amount over the course of a year.” 

Mileage, equipment, payload, road conditions, regional fuel prices and the balance between loaded and empty running all affect consumption, making fuel prices an operational efficiency problem. 

“If fuel volatility isn’t being considered in routing and capacity decisions, there is likely money being left on the table,” he says. “Companies should be looking at routing, consolidation opportunities, carrier capacity, and regional fuel costs as part of their transportation planning rather than treating fuel as simply a fixed surcharge.” 

Surcharges come under greater scrutiny 

Fuel surcharges have traditionally provided carriers with a mechanism to pass fluctuations in diesel costs through to their customers. But greater volatility is encouraging some shippers to examine more closely how those charges are calculated. For automotive manufacturers and suppliers, that means greater scrutiny of the difference between the underlying cost of moving the freight and the fuel component. 

Jairaj says he is seeing increased interest in moving away from all-in transport rates. “We are seeing more interest in moving away from all-in rates toward separating linehaul and fuel surcharge, because it gives shippers better visibility into what is actually driving their transportation costs,” he says. 

If fuel and linehaul are bundled together, it can become harder for a shipper to establish whether an increase reflects diesel prices, carrier operating costs or a change in the underlying freight market. Separating them gives logistics teams another lever in carrier negotiations. “It allows them to negotiate the underlying linehaul independently rather than having fuel fluctuations built into the entire rate,” Jairaj explains. “From a technical standpoint, it makes it easier to audit the fuel surcharge, understand which fuel index and baseline are being used, track changes over time, and compare carrier pricing on a more consistent basis.” 

Better visibility also has implications beyond procurement. Separating fuel expenditure can improve forecasting and allow companies to identify which parts of their networks are most exposed to price movements. “It also gives companies better data for budgeting and transportation cost analysis,” he adds. 

That could become increasingly important if fuel volatility persists. Rather than treating the surcharge as an unavoidable addition to the freight bill, automotive logistics teams can begin identifying where operational changes might reduce the underlying fuel requirement. 

Smaller fleets face a different equation 

The consequences are also uneven across the carrier base. Large fleets can use their purchasing scale to negotiate fuel discounts and have greater resources to invest in newer equipment, optimisation software and efficiency programmes. Smaller carriers may have less room to absorb sudden increases. 

“Smaller fleets can be more vulnerable, although many have ways to reduce that exposure,” says Jairaj. Collective purchasing is one approach. Jairaj points to smaller carriers in Michigan participating in buying groups or consortiums that allow them to aggregate their demand and negotiate fuel purchases collectively. 

But that doesn’t necessarily eliminate the scale advantage enjoyed by the largest operators. “Even with those arrangements, however, they may not have the same purchasing power or fuel discounts available to a very large national fleet, so significant fuel-price increases can have a greater impact on their margins,” he says. 

For automotive shippers, that raises a wider question around carrier resilience. A network that relies heavily on smaller regional fleets may experience fuel-price movements differently from one dominated by large national operators. 

Understanding how carriers procure fuel, and how much exposure they retain, could therefore become another consideration when assessing transport capacity and rates. 

Finding efficiency in the existing fleet 

While alternative powertrains promise to reduce dependence on diesel in the longer term, much of the immediate response to fuel costs is considerably more conventional. 

Route optimisation, aerodynamics, driver behaviour, consolidation and empty-mile reduction can all produce incremental improvements without requiring wholesale changes in fleet technology. 

“Route optimisation has definitely become more important,” says Jairaj, noting that even roadway grade can have a significant effect on fuel consumption. 

Carriers are consequently looking for savings throughout the operation. “From conversations I’ve had with carriers, they are looking at several different ways to reduce fuel consumption,” he says. “For example, a local asset-based carrier in Michigan mentioned experimenting with airflow devices and other aerodynamic improvements on their equipment.” 

Driver behaviour remains another variable. Acceleration, speed, braking an unnecessary idling can all influence consumption. “Driver training is another area, particularly around acceleration, idling, speed management, and other driving behaviors that affect fuel economy,” Jairaj says. 

However, the largest opportunities may come from reducing miles that did not need to be driven in the first place. “Beyond the equipment itself, better route planning, reducing empty miles, improving load consolidation, and minimising unnecessary out-of-route miles can all make a difference,” he says. “Individually, some of these improvements may seem small, but across a large number of miles they can add up.” 

Improving fuel economy by a small percentage or eliminating a relatively small number of movements can produce substantial savings when repeated across thousands of annual loads. 

Filling the trailer before changing the truck 

For OEMs and suppliers, one of the most immediate opportunities may therefore be transport utilisation rather than propulsion technology. “Consolidation is another major opportunity,” says Jairaj. “Improving trailer utilisation, both by weight and available space, can reduce the number of moves required, and at automotive volumes even small reductions in unnecessary shipments can add up.” 

Automotive's just-in-time model can complicate that calculation. Production requirements frequently determine when material needs to arrive, limiting the ability to wait for additional freight before dispatching a vehicle. But better forecasting, supplier coordination and visibility could increase opportunities to consolidate loads without threatening production. 

Jairaj argues that shippers should work with brokers and asset-based carriers to understand the equipment being deployed and encourage more fuel-efficient tractors and trailers where practical. Companies frequently specify limits on trailer age, but Jairaj believes the same thinking could be applied to tractors. 

“Tractor age and fuel efficiency should also be considered, as newer tractors generally incorporate improvements in engines, transmissions and aerodynamics that can improve fuel economy,” he says. 

The next step would be determining how the benefit is shared. If a carrier invests in equipment that reduces its fuel expenditure, Jairaj suggests shippers could negotiate mechanisms through which some of that saving is reflected in transport costs. 

Fuel becomes a network-design consideration 

Incorporating fuel exposure into strategic network design could be a more significant solution. Fuel has traditionally been treated primarily as an operating cost. Jairaj argues it can also form part of decisions about where companies position inventory and logistics facilities. 

“For longer-term network planning, companies can also consider regional fuel costs when deciding where to position warehouses and distribution points,” he says. That does not mean constructing a distribution centre simply because diesel is cheaper in one state. Labour availability, land, customer proximity, freight capacity, taxes and infrastructure will continue to dominate location decisions, but fuel can become another variable within the model. 

“Locating inventory closer to major customer clusters, particularly in regions with historically favorable transportation and fuel costs, can reduce miles traveled and overall fuel exposure,” Jairaj says. “Fuel should not be the sole factor in these decisions, but it can be incorporated into the broader network optimisation model.” 

The industry's response to volatile fuel prices doesn’t necessarily need to depend on predicting what diesel will cost next month or next year. Instead, companies can reduce the sensitivity of their networks to whatever happens to the price. 

From surcharge to strategy 

Jairaj's recommendations begin with visibility. “I would start by separating transportation costs into linehaul and fuel surcharge rather than relying only on all-in rates,” he says. “That gives logistics teams better visibility into fuel costs and a stronger basis for negotiating with carriers.” 

From there, the response becomes increasingly operational, looking at understanding how the equipment being used, assessing carrier fuel efficiency, consolidating freight, improving trailer utilisation, eliminating unnecessary miles, and incorporating regional fuel exposure into network planning. 

None of those measures alone removes the industry's dependence on fuel prices. Together, however, they can change the degree to which a movement in diesel prices translates directly into higher logistics expenditure. 

Automotive logistics companies cannot control commodity markets, geopolitical events or refinery capacity, but they can control how efficiently freight moves through their networks.