September 8, 2009
enroute | Dealing With High Fuel Costs

How to beat the high cost of fuel

How to beat the high cost of fuel

From minor changes in packaging to wholesale DC network redesigns, savvy companies are leaving few stones unturned in their quest to cut fuel expenses.

By Mark B. Solomon

At tech titan Hewlett-Packard Co., a program to redesign the packaging for notebook computers has trimmed package weight by 8 percent and increased the number of boxes per pallet by 25 percent—a move that has reduced the number of trucks needed and, by extension, the company's fuel costs.

At home improvement giant Lowe's Companies Inc., an initiative to increase private fleet utilization has allowed the retailer to use 4,900 fewer trailers to ship the same product quantities, cutting the company's annual vehicle miles traveled by 1.3 million and slashing its diesel fuel consumption by 285,000 gallons.

At mega-retailer Kohl's Department Stores, a re-engineered truck backhaul program has cut empty miles by creating nearly 19,000 backhaul trips from stores to distribution centers. By filling trailers with vendor merchandise returning to its DCs, Kohl's eliminates 3.6 million miles of formerly empty truck hauls.

Businesses are leaving few stones unturned in their quest to cut fuel expenses. Whether it's a minor tweak in product packaging or a wholesale distribution network redesign, they're finding ways to root out inefficiencies and reduce their fuel spend. For all their progress to date, however, it seems there's always more they could do. Significant opportunities still lie ahead to achieve the often-entwined benefits of lower fuel expenditures and carbon emission reductions, experts say. "There is a lot of low-hanging fruit out there," says Judy Glazer, director of global social and environmental responsibility at HP.

HP's own efforts to harvest that low-hanging fruit have extended well beyond its packaging redesign. The electronics company has also made changes to its distribution operations that will help conserve fuel. For instance, the high-tech giant, which each day ships more than 1 million products worldwide, says on its Web site that it has expanded its use of plastic pallets, which are 70 percent lighter than traditional wood pallets and which cost less to ship. (The company did not provide specifics on the extent of the initiative.)

HP has also re-jiggered its distribution network to reduce fuel consumption, according to its Web site. For instance, last year, the company restructured its operation so that Chinese-made inkjet printers imported through the Port of Long Beach, Calif., are received at a DC on the U.S. West Coast rather than in Memphis, Tenn., where they were handled in the past. The net effect has been to reduce vehicle miles traveled from the port of entry to the distribution point for the shipments.

Calm before the storm
HP, Lowe's, and Kohl's are hardly alone. Following last year's unprecedented oil price run-up to $147 a barrel in July (which was followed by an equally violent collapse to the $30-a-barrel level), interest in fuel-saving initiatives has been running high. Although oil prices have now settled into a trading range of between $60 and $70 a barrel, the transportation community remains wary. And many companies appear to be moving proactively to at least mitigate the damage from higher future oil prices while the current environment remains reasonably benign.

Last year's oil shocks exacted a particularly heavy toll on asset-based service providers. Truck fleets spent $151 billion on fuel in 2008, a whopping $36 billion increase from 2007 and more than double the amount spent in 2004, according to the American Trucking Associations.

Although diesel prices today stand at about $2.50 a gallon, almost 50 percent below the all-time high of $4.76 a gallon recorded in July 2008, carriers haven't forgotten last summer's pain at the pump. Like their shipper customers, they're taking advantage of what some believe is the calm before the next oil price storm to put fuel conservation initiatives in place.

For example, 3PD, a Marietta, Ga., company that provides pickups and "last mile" deliveries from retail stores and distribution centers to consumer residences, has refined its transportation model to limit the distance between pickup and delivery points on the average route to no more than 12 miles. Prior to last year's fierce run-up in oil prices and the subsequent economic downturn, the average distance between 3PD's stops was 21 miles.

Russell A. Marzen, executive vice president, warehousing and logistics, says the tweaking allows 3PD to maximize the number of pickups and deliveries in a typical day—the company's retailer clients pay it by the stop—while minimizing fuel burn. "It is simply not sufficient for us if we can't get the distance between stops down to 12 miles or less," says Marzen. He adds that the company continually strives to compress the distances even further, no small feat given the increasing demand it is experiencing for its services.

Helping hand
Truckers are also turning to technology in their quest to conserve fuel. For example, fuel optimization software, which directs truck drivers to the best locations to purchase their fuel, became a hot property during the long, hot summer of 2008.

The software remains in demand even though diesel prices have cooled off. On Aug. 4, truckload carrier Knight Transportation Inc. announced it had installed "IDSC ExpertFuel," a software program that Knight licensed from TMW Systems, a Cleveland-based developer. Phoenix-based Knight said it uses the software across its 35 regional operating centers.

"Whether diesel prices are high or low, pennies per gallon make a huge difference for our fleet," David Jackson, Knight's CFO, said in a statement. (Knight operates more than 3,700 trucks.) TMW customers generally save between 4 and 11 cents per gallon for each truck, said TMW Vice President David Schildmeyer.

Another solution, and one that seems quite basic, is addressing driver habits. Dedicated contract trucker Ruan Transport Inc., which consumes between 80 million and 85 million gallons of diesel fuel each year, says the difference between the behaviors of a competent and an incompetent driver is equivalent to a 30-percent swing in fuel spend per year.

Not surprisingly, Ruan puts driver training at the top of its priority list. "We believe that if you are safe, you are also efficient," said Jim Mulvenna, Ruan's vice president of administration and safety, in a recent webinar.

Other truckers have taken a similar tack. At carrier Stan Koch & Sons Trucking Inc., a program to reward drivers who reduce vehicle idle times helped the company cut idling by 75 percent from 2005 through 2007. Trucker Covenant Transport Inc. has taken a slightly different approach to the same problem: It charges drivers an hourly fee for idling in excess of a pre-set maximum level.

As these programs show, there are many ways to attack the oil monster. Which is a good thing, for companies will want to have plenty of arrows in the quiver for the next time they face the beast.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

More articles by Mark B. Solomon

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