High diesel prices force retailers to optimize their supply chains

As the holidays rapidly approach, consumers may want to look into whether Santa’s sleigh runs on diesel—because if so, somebody is footing the energy bill, and it might not be Old Saint Nick.

With the price of diesel fuel rising nearly 90% since the beginning of the year, according to the latest federal data, the question of whether the higher costs will trickle down to consumers looms over retailers looking to maintain margins while still keeping their prices low in a competitive environment.

The path from pump to purveyor is long and winding, however, and the short answer is it depends on how retailers manage their transportation costs.

“Retailers have really been doing a lot of work and a lot of logistics gymnastics to try and insulate consumers from having to feel those costs,” Jess Dankert, VP for supply chain at the Retail Industry Leaders Association (RILA), told Retail Brew.

This narrative may sound familiar. In previous cycles of geopolitical instability and rising trade costs, many major retailers and brands insisted they were able to keep costs out of consumers’ carts, whether that was through reshoring manufacturing, making investments in efficiencies, or negotiating with their suppliers.

This time around, retailers are trying everything from finding cost cutting opportunities in transportation and warehousing to changing the cadence of shipping and delivery and using new AI-powered technology to optimize their operations.

Will all this be enough to keep down prices? Given the wide range of transportation networks and strategies, Dankert said, it’s tough to say for sure.

“There are so many variables that go into pricing,” he said. “It’s challenging to say, ‘At this tipping point, then it will be necessary to pass on prices.’”

But some supply chain operators say the industry is running out of runway.

“I wish there was…gold at the end of the rainbow, but it’s getting harder,” Douglas King, VP of transportation at Cart.com, which handles fulfillment operations for retail clients, told Retail Brew.

Brands have turned to Cart.com for solutions, he added, and in many cases the company has been able to insulate customers from higher diesel prices by using the scale of its network and its relationship with shippers to get the best deal.

He pointed to recent increases in fuel surcharges from FedEx where Cart.com served as a buffer against swings in energy prices. “We passed none of that along to the customer,” he said. “We absorbed that, and we have leverage with all these carriers to mitigate that for ourselves, so it really defrays a lot of the risk.”

Yet, as diesel keeps getting more expensive, King noted that in some cases retailers are “making hard decisions about speed of shipping” and in some cases pulling back on offering free shipping. Before cutting back on services to customers, though, emerging technologies could also provide some relief. Omar Qari, CEO of Logicbroker, an AI-powered platform that connects retailers with suppliers and helps optimize supply chain operations, said, “There are a ton of levers that they can pull to drive additional margin.”

Logicbroker is working with retail clients to deploy agentic AI to pull insights from their data that could inform strategic decisions. This information can then be used to make adjustments to their supply chain or transportation networks, such as shifting distribution from a warehouse to a store or cutting back on products or categories that come with higher costs.

King also offered a note of optimism for retailers navigating this uncertain moment. The real opportunity is to treat fuel as a “strategic variable,” he said, rather than just a “passive cost.”

“You’re not powerless in this,” King said.