FUELING A RISE IN FREIGHT COSTS High oil prices begin to affect smaller IT players By Mike Cruz, CRN New York 12:59 PM EST Fri., Sept. 22, 2000 Shipping technology products is getting more expensive, as oil prices last week zoomed closer to the $40-per-barrel mark.

The shipping increases come as distributors, e-tailers and solution providers prepare for the typically high volumes of the fourth quarter and the holiday season, industry experts say.

The price of crude oil has risen nearly 50 percent this year to $37 per barrel from $25 in January. With diesel fuel rates topping $1.65 per gallon, logistics giant Federal Express passed on to some customers a 4 percent fuel surcharge per delivery. Likewise, rival UPS tacked on a 1.25 percent surcharge.

Typically, fuel is the second greatest expense, behind labor, for trucking and delivery companies, says Donald Broughton, transportation analyst at A.G. Edwards.

But the impact on the IT industry so far has been minimal because the emphasis is on speed of delivery as opposed to cost, he says. "If I'm Dell, I'm not going to start delivering product on a railroad just because the price of fuel goes up."

Distributors, however, are keeping a watchful eye on freight cost increases. While companies such as Ingram Micro have contracts with freight carriers with predetermined prices, small e-tailers and solution providers will absorb the freight surcharges, industry experts say.

"Rising fuel costs affect us, but only in that our costs for shipping have increased," says Roland Castonguay, president of Lifeline Technology, which sells handheld computing and digital imaging products over the Web.

"It's not a major concern at this point," but Lifeline may take a closer look at shipping fees if costs continue to rise, he says.

IM-Logistics, the logistics services division of Ingram Micro, ships 50,000 boxes a day from seven warehouses, says Paul Warden, IM-Logistics senior director.

FedEx and UPS handle 60 percent of those shipments, and trucking companies such as Watkins Motor Lines handle the rest.

"Rising fuel prices are a worldwide problem," says Warden, who helps manage the company's $200 million annual freight budget. But so far, IM-Logistics has not passed on freight surcharges to customers because of its prenegotiated contracts with shippers, he says.

If rising prices start affecting Ingram Micro, the distributor will have to decide whether to pass on the increase, he says.

Tech Data doesn't expect fuel costs to dampen the holiday season, says Jeff Howells, CFO of the distributor. "Freight is a real cost of doing business, but it's one the distributor and the customer can work together on to minimize the cost of increases," he says

http://www.crn.com/sections/news/top_news.asp?ArticleID=20141

-- Martin Thompson (mthom1927@aol.com), September 22, 2000

Answers

Several times this past year it has cost me more money to send a package than the contents of the package itself. This is all upside down. If high-tech companies are now starting to experience the same problem, I can understand their concern.

-- LillyLP (lillyLP@aol.com), September 23, 2000.