Fuel Hikes Pose Challenge for Logistics Systems

As Katrina's fury pushes gas pump prices beyond $3, corporate users and transport specialists rely on logistics, transportation and fleet management systems to try and find the best possible fuel deals.

With major oil refineries in the Gulf region incapacitated by Hurricane Katrina, businesses in other areas of the U.S. are struggling to contain already high fuel and shipping costs, often turning to specialized software for help.

Gas prices surged beyond $3 per gallon at some gas stations in the U.S., as New Orleans—a port that ordinarily handles a large chunk of the nations natural gas and crude oil supply—lay submerged under water.

Katrina was also the culprit in shutting down eight oil refineries near the Gulf of Mexico and cutting output at another three, decreasing total U.S. fuel production by over 10 percent.

The Mars platform of Royal Dutch Shell—responsible for 15 percent of total oil production in the Gulf—has been "severely damaged" by the savage storm, the U.S. Coast Guard said in a statement.

How are U.S.-based product distributors handling the price hikes? Some enterprises, such as large grocery chains, operate their own transportation fleets.

But others rely on outside shipping or transportation carriers to deliver their products by land, sea or air, said Greg Aimi, an analyst at AMR Research, during an interview.

Many companies in this category started using LMS (logistics management systems) or TMS (transportation management systems) to deal with skyrocketing fuel costs even before Katrina, according to the analyst.

Although vendors approaches vary, LMS/TMS offerings generally give customers the ability to compare carriers shipping and transportation services along a number of different parameters, including price, he said.

Typically, transportation carriers have coped with unexpected surges in oil and gas prices by tacking surcharges on to their earlier rates.

With some LMS/TMS products, customers can accommodate for these changes by plugging the surcharges into special built-in asset spreadsheets for adding extra costs, Aimi said.

These extra costs can also include other sorts of unexpected fees. For example, a carrier might also charge extra for "taking an elevator to the 10th floor" in order to make a delivery, he said.

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Vendors in the LMS/TMS space include Manugistics Inc.; i2 Technologies Inc.; Red Prairie Corp.; G Log; and Manhattan Associates, for instance.

PPG Industries Inc., a major paint manufacturer based in Pittsburgh, Pa., has saved more than $2 million a year—while also shipping a greater volume in less time with fewer resources—by adopting Manhattan Associates Transportation Management solution, said James M. Carr, manager of the paint-makers Corporate Logistic Center.

For customers that ship products via air carriers, Manhattan Associates solution contains a feature called Capacity Finder, designed to let users conduct reverse auctions online in trying to find the most efficient routes and carriers.

Some vendors also produce separate software wares targeted specifically at transportation carriers, or at customers that run their own fleets.

Manugistics Transportation and Logistics solutions include an offering for constraint-based fleet optimization.

Meanwhile, Manhattan Associates new Carrier Management suite contains capabilities for automatically figuring out the most favorable fuel and route plans for truck deliveries.

The vendors Fuel & Route solution takes into account route information toll costs, daily fuel prices, and even driver preferences.

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The software might suggest adding a little fuel at a nearby truck stop—but then waiting to fill up the tank at a station with cheaper prices somewhere down the road, said AMRs Aimi.

What kinds of "driver preferences" can the software consider? On-site restaurants constitute one example.

Driver retention is a big issue in the trucking industry right now, according to the AMR analyst.

Other vendors specializing in fleet management include Descartes Systems Group and UPS (United Parcel Service), through its Roadnet arm, for instance.

Roadnets customers range from Associated Food Stores, a nationwide grocery association in the U.S., to Culligan of Canada, a bottled water distributor with 15 branches in Canada.

Meanwhile, some transportation carriers, including large airlines, have been tackling the fuel hikes by "hedging" on energy market exchanges.

In hedging contracts, a company that knows it will need an asset in the future can lock in the price of purchase.

Now that Katrina has driven fuel prices even higher, some big enterprises might be well advised to adopt hedging tactics, too, said Kevin OMarah, another analyst at AMR.

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