When fuel costs point to a new direction
Read time : 3 mins Added: 06/12/2022
It’s not just hauliers and taxis who take the hit from petrol and diesel price hikes: the impact feeds through to every business. But smart tactics can help to ease the pain.
For drivers, rising figures at the pump were among the first signs of the elevated cost of living. The oil market prices that drive transport costs may have dipped from the record highs that followed Russia’s invasion of Ukraine, but they remain volatile.
In October the cost of filling up a car with diesel rose by more than £5 to £1051, triggered by the decision of the OPEC+ countries to cut oil production. The increase was a further blow to business owners’ bottom line, who have been forced to decide between cutting journeys or passing this cost on to their customers.
For hauliers, fuel accounts for around a third of the cost of running a truck2. Soaring diesel prices pile pressure onto an industry already struggling with recruitment gaps. But the effects of fuel price increases don’t stop with haulage drivers.
- In construction, for instance, fuel prices are pushing up the cost of development. The sector is already having to adapt to the end of the rebate on ‘red’ diesel – used for certain types of plant and machinery – a move intended to promote the adoption of more sustainable fuels.
- Agriculture is also feeling the effects of this change. Using a tractor to plough a field this summer cost over £220 a day3, according to farmers – double the cost of a year earlier.
- Bus, coach and taxi firms are feeling the pinch too. In some areas of the country, operators have turned down contracts because fuel costs make them unviable, while transport providers face big upfront costs in moving to electric fleets. Further, staff shortages – many of whom were from the EU – mean that, post Brexit, attracting and keeping employees is more costly.
- Home care workers travel over four million miles each day to reach service users across the UK, mostly using their own cars. Significant numbers are leaving the sector4 because they cannot afford to put fuel in their cars, according to one survey.
Few sectors are immune as fuel prices are passed on from transporters to the businesses they serve. Food and drink businesses, for example, are around twice as likely5 as firms in other sectors to report additional transport costs, according to ONS research.
Routes to efficiency
What could ease the burden?
- Many businesses are working hard to make road transport more efficient – for example, combining multiple orders into one delivery and enhancing communication with customers to cut down the number of failed deliveries.
- In-cab monitoring now enables transport firms to reward drivers for using fuel-efficient driving techniques.
- Reviewing transport and logistics arrangements – for instance, by storing items closer to their ultimate location, or shipping more items less frequently – can provide long-term benefits.
- Optimising routes to group local visits together can enable home care workers, for example, to cover less ground and use less fuel on their rounds.
Additionally, more than a fifth of the distance travelled by European freight lorries last year was ‘deadhead’ mileage6 – meaning the trucks were empty, en route to pick up cargo or heading back after a delivery. This is a clear target for efficiency, but scheduling complexity makes it far from straightforward. A real solution is dependent on rival companies joining forces to collaborate.
Cut costs, cut carbon
By reducing road mileage, these kinds of efficiencies often have genuine sustainability benefits, supporting net zero carbon strategies. Some businesses are rethinking their models around this theme.
Rebellion Brewery in Berkshire, for example, has shrunk the radius of its customer deliveries from 70 miles to 30. Not only is this less expensive and more environmentally friendly: it’s also a taste boon for customers, since real ale should ideally be consumed as soon as possible after brewing.
Of course, not every business model is adaptable in this way. For many, an obvious solution is moving to more environmentally-friendly vehicles – from e-cargo bikes to electric cars. If capital can be found, the payback for such a switch can be surprisingly fast.
In the immediate term, while acute pressures continue, the ability to pass on increased fuel costs to customers can be critical to survival. It’s a difficult move, but presenting any increase openly, with a clear and direct explanation, can help to keep customers onside.
Important legal information
Lloyds Bank is a trading name of Lloyds Bank plc, Bank of Scotland plc, Lloyds Bank Corporate Markets plc and Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH.
Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC327000. Lloyds Bank Corporate Markets plc. Registered office 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 10399850. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278, 169628 and 763256 respectively.
Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH is a wholly-owned subsidiary of Lloyds Bank Corporate Markets plc. Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH has its registered office at Thurn-und-Taxis Platz 6, 60313 Frankfurt, Germany. The company is registered with the Amtsgericht Frankfurt am Main, HRB 111650. Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH is supervised by the Bundesanstalt für Finanzdienstleistungsaufsicht.
Eligible deposits with us are protected by the Financial Services Compensation Scheme (FSCS). We are covered by the Financial Ombudsman Service (FOS). Please note that due to FSCS and FOS eligibility criteria not all business customers will be covered.
While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by Lloyds Bank for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. Specific advice should always be sought in each instance.