Food supply chain and logistics operators have warned of the knock-on effects of the rise in inflationary pressures, which have “wiped” transport margins and forced them to reduce trading days.
The rise in fuel and energy costs has taken such a toll on supply chain companies that they had taken extreme measures – such as cutting lines or reducing the number of trading hours or days.
The British Frozen Food Federation said this would lead to long-term effects for the industry, including food shortages.
“The effect of rising energy and fuel costs on the frozen food value chain cannot be underestimated,” said BFFF CEO Rupert Ashby.
“Our members are being hit by huge increases in the price of ingredients and energy costs not seen for a generation.
“Whilst they have tried to withhold passing on the ever-increasing costs to customers, they are now reaching a point where this can no longer be avoided.”
Ashby added this would “have longer-term effects on supplies, employment and many other areas, and may lead to shortages”.
His comments came just as the government proposed a 23% increase in fuel duty, which equated to an additional 12p per litre of petrol or diesel at the pumps.
Trade body Logistics UK said that, if introduced, the fuel duty hike would be a “body blow to the logistics industry”.
Logistics UK CEO David Wells said: “Logistics is at the heart of all economic activity in this country, and relies on fuel to facilitate its work, whatever the mode of transport used.
“With businesses already under financial pressure, and operating on very narrow margins, a duty hike of this magnitude would have significant impacts, for operating costs and, ultimately, on inflation.
“We are seeking urgent clarification as to whether the duty rise will be implemented as planned, as a rise of this magnitude would have a detrimental effect on the UK’s economy, stifling activity and placing unnecessary pressure on a sector deemed ‘essential’ only a year ago.”
The sector’s representative group said that it estimated that a small haulage firm with seven HGVs would have £34,000 pa added to annual operating costs if the duty rise were to be introduced after March 2023.
The Road Haulage Association has confirmed that “spiralling fuel and energy costs” were taking a “massive” toll on its hauliers, many of whom were already operating on “paper-thin margins”.
“These rises are unsustainable for many if they can’t pass them on,” said RHA head of news & media Paul Mummery.
“This is why we’re calling on ministers to announce a minimum 15 pence per litre fuel duty rebate for transport operators to reduce the cost of moving goods and ease inflation.”
Meanwhile, supply chain specialist Oakland International – which provides retail distribution into UK and Ireland retailer depots for chilled and selected ambient products – said its fuel costs had risen by over 20% in recent months, which has “effectively more than wiped out any margin made on transport operations”.
Additionally, Oakland’s energy-intensive operations have seen energy costs doubling in just eight months, which has had “a major impact on margins” as well, it said.
“We have invested heavily in renewables, which has helped marginally this year and we have agreed to more than double our solar PV energy production in 2023 to head off at least some of the further increases expected over the winter and into spring,” said CEO Dean Attwell.
“We feel that there is going to have to be an electricity cost escalator mechanism applied to our sector in the same way as there is a fuel escalator for transport.”
The BFFF’s Ashby said that the food industry “surely must be top of the list for continued assistance”.
”Ministers need to understand that if businesses in our industry are not properly supported and rising energy costs go unchecked, families across the country will have to choose between heating and eating as the price of frozen food will inevitably have to increase.”
Frozen food manufacturer Paramount 21 has moved some of its sales into the retail supply arena so it wasn’t fully reliant on foodservice, which is “still under enormous pressure with much more to come I fear”, said chairman Ali Hannaford.
The company has seen skyrocketing increases across all supply operational areas, from transport and storage to global shipping.
“Businesses will not survive if the supply chain doesn’t work through this instability together,” added Hannaford. “I very much feel that we are all moving into a new era and food prices will find their new level but until this has been reached there will be instability in the market and undoubtedly business closures will come from that.”
The Office for National Statistics recently reported that foodservice operators were more likely than any other industry to cut trading by at least two days a week in order to reduce energy costs.
They were also the most likely to plan to reduce trading hours, even if still operating for the same number of days.
Both BFFF and the RHA have called on the government to extend the energy support being given to food businesses beyond the end of March.
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