When fuel prices spike, the impact on promotional products goes far beyond the obvious increase in freight charges. Fuel is embedded in almost every step of the supply chain, creating a cascade of hidden cost increases that eventually show up in your cost of goods sold. There is no more visible economic signal than the price of fuel.
And don’t confuse “fuel costs” with just UPS or FedEx. Increased fuel costs include:
- Ocean freight fuel surcharges
- Trucking fuel surcharges
- Air freight increases
- Local delivery costs
- Courier and parcel carrier surcharges (UPS, FedEx, USPS)
A container from Asia doesn’t just cost more to move across the ocean—it costs more to move from the factory to the port, from the port to the warehouse, and from the warehouse to your customer. A typical large container ship traveling from Hong Kong to Los Angeles burns $2–4 million in fuel each way. Add a fuel surcharge and the landed cost for suppliers jumps.
But that’s not all.
This industry lives on plastic. Plastic—resin—is a petroleum-based product. When the cost of resin spikes, the unit cost of goods spikes. In volatile markets, suppliers often absorb the increase until things settle down, but when they can’t, those costs get passed on to you and your client. Even fabric products rely on petroleum, from inks to coatings.
But that’s not all.
Smelting and fabricating metal products require massive amounts of fuel. Transporting that fuel, even if it’s coal, costs more.
But that’s not all.
Harvesting cotton for a T-shirt or producing poly fabrics depends on oil and fuel. The mills that knit and finish the fabric run on power generated from oil.
But that’s not all.
Packaging, from plastic bags to shrink wrap, is oil. Corrugated boxes and pallets cost more to produce as oil prices rise.
And you can add a host of secondary increases: heating and air conditioning, higher wages as employees struggle with their own fuel costs, and more.
Let’s not forget that all along the supply chain—from raw material to finished goods—there is markup upon markup. Whether fixed or variable, every value-added step compounds the final price paid by the buyer.
The good news: if suppliers have existing inventory, they can often hold pricing. But if they carry only limited stock, you’ll see price spikes. A branded USB drive, for example, contains metal, plastic, circuit boards derived from petroleum, and packaging. With thousands of variations, most suppliers import to order or rely on JIT inventory. Pricing can change quickly.
Freight costs react almost immediately when oil rises or falls. Packaging follows soon after. Other cost increases can take up to a year to fully hit.
Some clients are clueless about why pricing is going up. Understanding the “why” behind supplier increases, and behind nearly every consumer product increase, makes you a more knowledgeable promotional products consultant and helps you explain how you and your client are sharing the pain.
Joel D. Schaffer, MAS is CEO and Founder of Soundline, LLC, the pioneering supplier to the promotional products industry of audio products. Joel has 48 years of promotional product industry experience and proudly heralds “I was a distributor.” He has been on the advisory panel of the business and marketing department of St. John’s University in New York and is a frequent speaker at Rutgers Graduate School of Business. He is an industry Advocate and has appeared before the American Bankers Association, American Marketing Association, National Premium Sales Executives, American Booksellers Association and several other major groups. He has been a management consultant to organizations such as The College Board and helped many suppliers enter this industry. He is a frequent contributor to PPB and Counselor magazines. He has facilitated over 200 classes sharing his industry knowledge nationwide. He is known for his cutting humor and enthusiasm in presenting provocative and motivating programs. He is the only person to have received both the Marvin Spike Industry Lifetime Achievement Award (2002) and PPAI’s Distinguished Service Award (2011). He is a past director of PPAI and has chaired several PPAI committees and task forces. He is a past Chair of the SAAGNY Foundation, Past President of SAAGNY and a SAAGNY Hall of Fame member. He was cited by ASI as one of the 50 most influential people in the industry.