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The Downstream Impact of Rising Fuel Costs – Procurement’s Next Challenge

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Procurement is no stranger when it comes to navigating stressful and unexpected scenarios, which will help us as we face the staggering reality and impact of rising fuel costs.

The impact of fuel costs is going to wreak havoc on nearly all verticals in procurement. This article will examine a few scenarios and further explore procurement’s next challenge.


The Immediate Impact of Rising Fuel Costs

 

The recent volatility of gas prices (spoiler alert: they are skyrocketing) has created a media frenzy, with alarm bells ringing and everyone from consumers to retailers wringing their hands. To say that the rising fuel costs are causing headaches would be an understatement.

So, why is everyone so stressed out? Well, it’s more than just the initial pain experienced at the pump for the individual (although that one definitely hurts). It stretches further, like a butterfly effect.

The immediate impact of rising fuel costs means higher gas prices, which means that each of us has to pay more at the pump, which means that we will have less leftover in our wallets to spend on other goods and services. That’s the immediate effect.

But the drag on the economy continues along that vein. When fuel costs rise, those spikes in price impact everything from that initial consumer spending to the crippling of businesses who rely on attainable fuel to fuel their entire logistics and transportation/supply chain operations worldwide.

All prices for everything shoot up, and the elephant in the room is that goods cost more to get from point A to point B.

The infamous trucker shortage is just one example of this. No one escapes the scourge, and all industries are going to see a sharp increase in the cost of doing business, especially in the niche of freight and logistics.


Procurement’s Other Impacted Verticals


Although we may not see it right away, these other areas are also impacted, leaving procurement professionals with an uphill battle.


Rising Fuel Costs and the Impact on Food and Bev


The BBC recently explored the specific impacts rising fuel costs would have on the food and beverage industry. Quoting James Bielby, the chief executive of the Federation of Wholesale Distributors, the article explained how the escalating fuel prices will cause a painful trickle-down effect from wholesalers to restaurants and grocers, all the way to the consumer.

When commenting on the current fuel price hikes, Bielby said, “Food price inflation is already happening, but this is going to make it worse, because there’ll be charges passed on to customers and then obviously to end users as well.” He added that this means “people buying food and drink in shops, when they’re eating out, will be paying more because the cost of distributing those goods to the outlet has gone up so much.”


Rising Fuel Costs and the Impact on CPG

As for Consumer Packaged Goods (CPG)—an industry term that describes those items that customers consume or use up, then replace regularly—rising fuel costs are causing upticks in price tags. Examples of CPGs include food and beverage products, cosmetics, cleaning products, and more—all of which the world’s citizens can expect to pay a bit more for (best case scenario) moving forward.

Our article covering the 4 Ps of the supply chain crisis explains more about how it all works together—or doesn’t.


Rising Fuel Costs and the Impact on Capital Expenditures


When it comes to the impact of rising fuel costs on capital expenditures, the short of it is that Capex projects are being cut. CNBC detailed what is really driving these cuts and specific repercussions.

Although oil prices are surging, investments in large projects are slowing down substantially. Goldman Sachs offered its insight into what’s behind this trend of reducing and delaying investment, attributing the hesitation to investors increasingly avoiding industries that produce fossil fuels and heavy carbon emissions. This causes a schism that does not bode well for capital expenditures.

While the current state of skyrocketing fuel costs can be overwhelming and scary at times, the good news is that you are not alone in trying to navigate this new procurement challenge. The Foundry brings together a community that explores how to meet—and overcome— all kinds of procurement challenges like this.

Join the Foundry today and become a part of this thriving community. We are here to help you succeed, despite these ever-shifting times.

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