Tesco suppliers will be hit with additional costs after the supermarket opted to impose price hikes in light of the ongoing driver shortage.
The new costs will be applied to Tesco’s primary distribution rates, a service run by supermarkets which broker third-party hauliers to collect goods from supplier depots and transport them to the retailer’s distribution centres.
Haulage companies have increased their prices over the last two months in order to cover the rising costs of driver wages and these have largely been passed onto customers.
In a letter to suppliers last week, Tesco said an additional 14% surcharge will be added to primary distribution rates. The surcharge will run from 1 August until 31 December although Tesco later confirmed it intends to review the rate in three months.
The additional costs will come via amendments to the fuel surcharge, a floating cost that allows haulage prices to escalate to reflect changing fuel prices.
Nick Hay, former CEO of Fowler Welch, said “it’s interesting that they’re using that same approach for driver costs. That says to me they recognise this might have to happen again.”
While the move has caused alarm among some suppliers, one of whom claims the change came with “zero consultation” from Tesco, Hay was “buoyed” by evidence that retailers are taking the driver shortage seriously.
“At times retailers will try and hold off on accepting there’s a problem and pursue other alternatives before they accept there needs to be an increase in costs. So I think it’s very positive that there’s a realism about this issue.”
Yet failing to discuss the price change before its introduction could cause problems for Tesco later down the line, suggested Henry Chambers, commercial director at Sentinel Management Consultants.
Not only is it “sailing pretty close to the wind” on GSCOP regulations built upon the principle of collaboration, said Chambers, but may well provide a “green light to manufacturers that Tesco is open to discussing price rises on inflationary factors like commodity prices.”
A Tesco spokesperson said it is working closely with hauliers and suppliers and the price change “went through an independent process to agree rates that are competitive for the market”.
“We are doing everything we can to manage the current challenges facing the logistics industry and ensure our customers are able to get the products they need.”
Nearly all supermarkets are striving to adapt their supply chains to cope with the current driver shortage, according to one haulage operator, although they said no two retailers are taking the same approach.
“They’re not interested in what each other is doing and are going in different directions. That puts the supply chain under real strain.”
Tesco said its addressing the crisis by increasing its use of rail for importing food from Europe and improved efficiencies such as reducing the time drivers spend at depots.