Fleet operators who do not have fuel surcharge systems built into their contracts are taking an ‘incredible’ gamble as diesel prices rise sharply during the escalating Iran conflict, writes Tim Wallace.
Haulage firms that already include fuel escalator clauses in their customer agreements say they are largely protected from the worst price swings because increases in wholesale fuel costs are automatically reflected in the rates they charge. However, businesses without these protections could face serious financial strain if predictions of steep price rises come true.
The warnings come amid accusations that fuel retailers are profiteering after petrol and diesel prices climbed rapidly in recent days. Critics say much of the fuel currently being sold was purchased before the latest tensions in the Middle East pushed global oil prices higher.
Motoring organisations have also cautioned that prices could rise further if disruption around the Strait of Hormuz continues. Some industry forecasts suggest diesel prices could increase by as much as 20p per litre in the coming days.
Angela Carus, managing director of Law Distribution, said her company includes a fuel surcharge clause in contracts so charges move in line with wholesale price changes.
“Currently we are seeing a slight increase in our wholesale purchase prices,” she said, pointing to 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.”
Pallet network Pall-Ex also noted that fuel surcharges are now a common feature in haulage agreements.
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 some companies might drop surcharges in an attempt to win new work, but doing so exposes them to serious risk when markets are volatile.
“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 managing director Lesley O’Brien said her business has used a fuel escalator for about ten years, meaning customers are familiar with prices moving up or down alongside fuel costs.
“We have been alerted to a possible 20p increase next week,” she said.
However, she said rising diesel prices could make annual tariff negotiations—due to take effect from 1 April—more difficult.
“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.”
Lesley O’Brien added that companies without clear and established fuel escalator systems may struggle if diesel prices continue to rise.
“Companies who have not had a historical transparent fuel escalator I am sure will have problems,” she said.
