Since the start of the war in the Middle East, businesses across the UK have been feeling the effects, with the price of fuel skyrocketing to some of the highest levels since Russia invaded Ukraine in the summer of 2022.
Whilst businesses across many sectors rely on fuel for their operations, the transport, haulage and logistics industries have perhaps been the hardest hit, with some spending thousands of pounds more on fuel per week due to rising prices.
With the situation still so fluid and oil prices continuously fluctuating, we’re unlikely to see a drop in costs at the pump anytime soon, as it will take months to restart oil production and get supplies back to normal.
With this in mind, transport, haulage and logistics companies must either increase their rates or find smarter ways to manage costs, in order to stay competitive in a turbulent market.
The current situation is seeing transport, haulage and logistics companies falling into two camps. On one hand, we have the companies that have fuel escalators in place, so have agreed up front what the rate for a job will be, based on expected fuel prices. These are usually found in longer term contracts, where goods are moved over a six month or year period, and often include a clause that allows the haulier to increase their rate if fuel goes above an agreed figure.
Companies in this camp are, on the whole, not seeing much of a drop-off in work or profits as a result of the fuel price increases. They may be seeing a slight fall in activity, but this is likely because their customers are struggling to sell their product as a result of increasing their own prices.
On the other hand, we have the hauliers that quote on a day-to-day basis for work. Some of these companies will have been caught out on longer term contracts with no escalators, however most are managing to pass on a significant level of their increased costs. This has been made possible due to the lack of haulage capacity, meaning that customers are having to reluctantly accept the price rises.
This is a challenge for both the haulier and the customer though, as it often eats up a lot of time and capacity to get the price rises agreed - resulting in a lag between the price rise itself and it being reflected in the rate.
Another challenge that hauliers are navigating is banking arrangements. The extra cost of fuel is putting pressure on banking arrangements, as fuel costs are now around 25% more expensive, meaning that businesses are increasingly relying on financing. As a result, many are getting close to, or even breaching, their agreed overdraft limits, so it’s vital that finances are reviewed in an attempt to cut costs in other areas and improve reserve levels.
For businesses that are hesitant to increase their rates and push price increases onto their customers, greater internal efficiency is paramount. Higher prices at the pump must be offset by cost reductions in other departments, so streamlining operations in other areas of the business is vital.
Route optimisation is a key consideration to reduce fuel consumption and avoid unnecessary delays. Using specialist software to work out the best routes based on traffic, weather and delivery times will cut extra mileage, lower petrol use and make deliveries faster. What’s more, businesses can consolidate loads by putting more shipments together so that they can cover a greater area from one starting point, using less fuel whilst still meeting delivery deadlines.
Now might also be the time to consider greening your fleet and making use of alternative fuels like biodiesel and CNG. Although these materials are still affected by the conflict in the Middle East, looking to UK-based suppliers that manufacture products from used cooking oil could help to mitigate rising fuel costs caused by supply issues overseas.
Although not something that many businesses will be able to prioritise in the near future, fleet efficiency will be a key learning from the last few months. Old trucks that use more fuel can cause big issues for the bottom line of a company, so budget forecasts for 2027 may need tweaking to allow for significant fleet investment. Businesses should be looking to buy newer trucks that meet Euro 6 emission rules - not only will this save money, but it will also be less polluting, improving sustainability. And for those that have a large number of local and city deliveries to fulfil, electric HGVs are ideal for both cost and carbon savings.
The current situation demonstrates that financial planning and risk management are essential for the success of any transport, haulage and logistics business. And for many, revisiting growth plans for the year ahead will not be a theoretical exercise, but a practical response to this developing risk.
At times like these, having effective cash flow can make the difference between continuing to operate effectively and having to down tools. Businesses should review their cash flow forecasts to reflect higher outgoings for fuel and plan ahead for times when they know bills will be due in other areas of the business. Reviewing payment terms for customers is also a consideration, ensuring that services are paid for in full at the point of delivery to keep balance sheets healthy.
Reviewing reserves policies and ensuring strategic reserve management will also help businesses stay ahead of the game. Reserves should be monitored closely, and spending should be aligned with long-term growth plans to avoid overspending in areas that could be adjusted or delayed. Streamlining external costs can also strengthen reserve levels, for example, businesses should review current suppliers to ensure they’re still offering competitive prices, as there may be cheaper alternatives available.
For businesses relying on year-end results, re-evaluating their financial planning, and regularly setting and monitoring forecasts and budgets will put them in a much better position. Using more up-to-date software not only helps with this, but also creates bookkeeping efficiencies, allowing them to identify and deal with problems in a timely manner.
It’s inevitable that fuel prices will always fluctuate, but preparation and adaptation will help transport, haulage and logistics businesses stay one step ahead. Those that are flexible and innovative will be able to more effectively manage costs, avoid delays and maintain customer satisfaction.
Duncan & Toplis provides accounting and business services specifically designed for transport, haulage and logistics businesses, including cash flow and financial planning, fleet management and regulatory guidance. To find out more, contact Keith Phillips or your usual Duncan & Toplis advisor.
