In an unprecedented response to rising oil prices, President Biden has announced significant changes in hope of decreasing the cost of oil and fuel surcharges. On March 31, 2022, President Biden announced initiatives to encourage the domestic production of energy-efficient technology and crude oil supply. Still, he also declared the immediate release of one million barrels of oil from the strategic oil reserves per day for the next six months. Reuters commented on this extended release by adding, "Biden's 180 million-barrel release is equivalent to about two days of global demand and marks the third time Washington has tapped the SPR in the past six months." This move comes on the heels of additional fuel surcharges from both FedEx and UPS. This article will address the importance of this release and its impact on the supply chain.
In President Biden's press conference, he shared that the two primary causes of this enormous strategic oil reserves release were COVID-19 and the Russia-Ukraine conflict. Over time, the unexpected ramp-up in uncertainty across all factors caused high fuel costs impacting transportation in every form and causing parcel carrier fuel surcharges. While some may argue against this move, it is a sign that uncertainty is the biggest factor in transportation management, and while primary causes, there were other factors at play in the transportation industry. These other influences ranging from labor to equipment shortages and beyond to e-commerce growth.
In response to continued rising fuel prices, both FedEx and UPS have implemented higher fuel surcharges as follows, effective April 4, 2022:
As always, these surcharges are based on data from prior weeks, and the on-highway diesel fuel apices for this disruption are not yet known. However, the Biden Administration is working to curb its effects.
As the amount of nationally available crude oil supply increases, shippers are hopeful to see a price change on fuel costs sooner than later. However, oil prices are still dependent on OPEC, and the final chapter on oil pricing is yet to come. Still with lowering fuel costs, parcel shippers look forward to a slight relief in fuel surcharges that provides an opportunity to focus on optimizing transportation spending. additionally, shippers should stay cautious and realize that meaningful fuel cost reductions are still far from the reality of today.
Critical business decisions such as freight network optimization are possible when carriers have the financial leeway to offer competitive pricing to shippers focused on finding dedicated carriers or other creative solutions. The strategic oil reserves release could even improve inflation across the country due to fuel's critical impact on the cost of everyday items. A change in inflation may even help customers spend more on commodities. That, in turn, will continue to stimulate the supply chain and the economic recovery from the first wave of unprecedented times.
The strategic oil reserves release will provide more financial flexibility for shippers to get their products where they need them. Despite this "breathing room" after a tense few months of rapidly increased costs, it's important for shippers to maximize their time by optimizing their business operations. A few suggestions include:
The release of strategic oil reserves will likely increase the economy and supply chain flexibility to respond, but uncertainty is the absolute factor driving all decisions around projected fuel costs. Although many supply chain professionals will simply enjoy this decision's financial benefits, those invested in business resilience will use this time to stay and grow more future-ready. Intelligent Audit is an experienced, proven business logistics solution that can aid businesses in doing just that. To learn more about the advantages of using your data for your good, start a conversation with Intelligent Audit today.
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