Fleet operators without fuel surcharge mechanisms in place are taking an “incredible” risk as diesel prices surge amid the escalating Iran conflict, industry leaders have warned.
Transport firms with established fuel escalators built into customer contracts say they are largely insulated from the worst of the volatility, with increases automatically passed on when wholesale fuel prices rise. But those without such mechanisms could face significant financial pressure if forecasts of sharp increases materialise.
The warnings come as fuel retailers face accusations of profiteering after petrol and diesel prices rose sharply in recent days despite much of the fuel currently being sold having been bought before the latest Middle East tensions pushed oil markets higher.
Motoring groups have warned prices could climb further if disruption around the Strait of Hormuz continues, with some industry forecasts suggesting diesel could rise by as much as 20p per litre in the coming days.
Bob Terris, chairman of Meachers Global Logistics, told MT it was surprising that some operators still expose themselves to fluctuations in fuel prices, which account for a major share of haulage costs.
“We have had a fuel cost mechanism for over 40 years,” he said. “A base price for fuel is logged into our system for each customer depending on the date of trading commencing which is included in their quotation.
“The surcharge or rebate is adjusted weekly if changes take place.
“It seems incredible to me that there are still operators taking a risk on the price of fuel given the proportion of costs that it represents.”
Terris said concerns about fuel costs and availability dominated discussions at a recent Transport Association meeting attended by around 60 companies, although no operators reported customers refusing to pay surcharges.
Added Cullimore Group MD and RHA chair Moreton Cullimore: “Fuel escalators have been around for a long time through previous crises and in some parts of the industry they have been accepted as common practice. However it is true that they are unpopular or unenforceable for others, such as the aggregates and construction materials world. That makes the sudden large jump in fuel cost really hard to bare and will cause a shock.
“The RHA supports its members by giving the most up-to-date information possible, not just in fuel costs but other costs in the sector. By supporting operators with the best regular information the operator can then make that choice.”
Angela Carus, MD of Law Distribution, said the company’s contracts include a fuel surcharge mechanism that adjusts charges in line with wholesale fuel movements.
“Currently we are seeing a slight increase in our wholesale purchase prices,” she said, citing examples of diesel rising from 108.56p to 111.44p per litre from one supplier.
“With all our customers, we have a fuel surcharge mechanism built into contracts so that if the fuel price goes up, we pass on the element of cost and if it goes down, we give the customer a credit using the same calculations, so it’s a fair and consistent approach for both parties.
“With this system in place, we don’t get any refusals to pay or issues.”
Network operator Pall-Ex also said fuel surcharges have become a standard part of haulage contracts.
Group chief executive Kevin Buchanan said: “Fuel surcharges have been normal now for many years and if correctly constructed can be good for both customer and hauliers.
“It is financial suicide not to have them in place.”
He added that while some companies may be tempted to drop surcharges to win business, doing so carries significant risk in volatile markets.
“Sometimes companies try to gain market share by not putting them on new business accounts when pitching to win the business, but it really is desperation and extremely high risk not to have one in place on all accounts,” he said.
Freightlink Europe MD Lesley O’Brien said her company has operated a fuel escalator for around a decade, agreeing that it meant customers are accustomed to fluctuations in charges as fuel prices rise and fall.
“We have been alerted to a possible 20p increase next week,” she said.
However, she warned that rising fuel costs could complicate annual tariff negotiations due to take effect from 1 April.
“The interesting question is a possible kickback on tariff increases which we are looking at from 1 April,” she said.
“In honesty, to date most customers have been understanding. Maybe the message is getting across; that without trucks you get nothing.”
O’Brien added that operators without transparent, long-standing fuel escalation mechanisms in place may struggle if prices continue to climb.
“Companies who have not had a historical transparent fuel escalator I am sure will have problems,” she said.
