How the Rising Costs of Fuel Affect Your Freight Charges
4 minutes to read
What you need to know:
- Even before the conflict in Ukraine, pressure on the fuel market was causing rises at the pumps
- The conflict in Ukraine and embargoes on Russian energy has exacerbated concerns over supply
- Increased costs at the pump in turn means increased costs for deliveries and shipping goods
- There is a real need for freight firms and hauliers to implement fuel surcharges to remain viable
Why the cost of fuel is rising
Even before the current conflict in the Ukraine and subsequent embargoes on Russian energy, the cost of fuel was on the rise.
Over the twelve months since early 2021, the cost of oil production surged by 60%. Contributing factors to this are primarily that fossil fuels are now more difficult to extract after a hundred years of mining the most easy to reach sources, but also the general shortage of resources due to the pandemic.
While the need for crude oil collapsed during the pandemic restrictions, demand has surged again as lives (and travel) get back to normal. The cost of Brent crude started the year at $80 a barrel and then rose again with the Ukrainian crisis to hit $139 a barrel in early March.
This is coupled with a weakening in the value of the Pound to the US Dollar since February. Mid-Feb, the exchange rate was £1:$1.36, but by March 7 this was down to $1.315, making dollar-priced oil even more expensive.
The inevitable result is a rise in the cost of petrol and diesel at the pumps. Motoring bodies are calling on the Chancellor to reduce fuel duty and VAT to help the industry. Whether he will want to do so at a time when the country’s finances are still running a deficit in recovery from the pandemic remains to be seen.
What the rising fuels costs mean to you and your customers
Sadly, as we obviously know, the rise in the cost of fuel – and diesel in particular – means that haulage and freight companies are seeing a significant increase in overheads (on top of the driver wage increases resulting from a shortage of drivers).
This means it costs a lot more to transport goods from one place to another than it did. Freight operators that are already operating on slim margins (the average UK haulage firm makes an annual profit of 3%) are seeing these further reduced, perhaps to the point where the business is no longer viable – as was the case similarly with a large number of energy suppliers in 2021.
Cost of fuel can account for 25%-30% of a freight firm’s costs. To allow for this, they need to charge more to their customers. And in turn, their customers will need to charge more for the products they are selling on to their consumers or purchasers. It’s a domino effect.
Why we need to implement fuel surcharges
In a nutshell: we need to implement fuel surcharges in order to maintain the service we provide to our customers.
The fuel surcharge means we will be able to continue to spend money on vehicle maintenance, insurance, health & safety, IT resources, new vehicles, related equipment, an adequate workforce and taking care of our infrastructure. All of which are critical to delivering a safe, reliable and efficient service for our clients.
We value the integrity of our service, the wellbeing of our employees and the sustainability of our business.
Thank you for your understanding in these critical times. Of course, as events develop and costs fluctuate either way, we will continue to review our surcharges and advise changes.
Looking to optimise costs in your supply chain?
With our immense level of experience and personal attention to detail, your goods can be transported in a way that ensures no space is wasted and every hour between the source and your destination counts.
To discuss your shipping needs with a member of our expert team, call +44 (0)1473 852958 or email us at email@example.com