Knowledge & Insights

Surviving the OPEC Oil Cut: Innovative Strategies for Businesses to Cope with Rising Costs

Our recent post talks about the impact of OPEC’s decision on the logistics industry and how businesses are adapting to the new reality of higher fuel prices. Businesses across various industries are likely to experience rising costs as a result. However, there are several ways that industry and business owners can cope with this impact and mitigate the effects on their bottom line. From finding alternative energy sources to negotiating better rates with suppliers, businesses have options to reduce their dependence on oil and stay competitive in the face of rising costs. In this article, we’ll explore some of the strategies that businesses can consider to cope with the impact of OPEC’s decision to cut oil production.

Negotiate better rates with suppliers: Business owners can also negotiate better rates with their oil suppliers to offset some of the rising costs. This can involve exploring different suppliers or purchasing in bulk to secure better pricing. A manufacturing company may explore different suppliers and negotiate pricing to secure better rates for their oil purchases. Additionally, they can purchase in bulk to take advantage of volume discounts. For example, a company like Coca-Cola may negotiate directly with oil suppliers to secure better pricing for the diesel fuel used to transport their products.

Pass on costs to customers: Finally, businesses may need to pass on the rising costs of oil to their customers through price increases. While this may be difficult to do in a competitive market, it may be necessary to maintain profitability and stay in business. A retailer may need to raise prices on products to account for increased transportation costs resulting from rising oil prices. For example, a grocery store may increase prices on certain products to offset the higher cost of transporting those goods from the warehouse to the store. Similarly, a restaurant may adjust menu prices to account for higher delivery costs from suppliers.

Increase fuel efficiency. Another option is to fuel efficiency in vehicles and equipment to reduce overall fuel consumption. This can be achieved through measures such as better maintenance, route optimization, and upgrading to more fuel-efficient vehicles. A trucking company can implement better route planning and scheduling to avoid unnecessary miles driven and reduce fuel consumption. Additionally, they can maintain their fleet regularly to ensure engines are running at peak efficiency and upgrade their vehicles to more fuel-efficient models. For example, the company UPS has invested in a fleet of vehicles that use compressed natural gas (CNG) and has also implemented routing technology to optimize their delivery routes, which has resulted in a significant reduction in fuel consumption.

Find alternative energy sources. One solution is to find alternative energy sources that can replace oil, such as renewable energy or natural gas. This can help reduce dependence on oil and provide a more sustainable energy source for logistics and transportation. A logistics company may explore the use of electric or hybrid vehicles for transportation or even consider utilizing biodiesel or ethanol fuel as an alternative to traditional gasoline or diesel fuel. For example, FedEx has incorporated hybrid-electric delivery vans into their fleet and plans to replace all of their delivery trucks with electric vehicles in the coming years. Similarly, Amazon has pledged to use 100% renewable energy by 2025 and has already invested in wind and solar energy projects to power their warehouses and data centres.

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Overall, the impact of OPEC’s decision to cut oil production will depend on various factors, including the size of a business, the industry it operates in, and the level of dependence on oil. Finding alternative energy sources, improving fuel efficiency, negotiating better rates with suppliers, and passing on costs to customers are some strategies that businesses can consider to mitigate the impact of rising oil costs.