The supply chain is groaning under the weight of fuel price hikes, with food distributors admitting they are among the worst hit and retailers under pressure to raise prices.
The industry was this week shaken as the average price of petrol and diesel at the pump rose to just short of £1 per litre due to high crude oil prices.
One major food and drink distributor told The Grocer the situation was threatening its business. “We cannot continue to soak up increases that are pretty horrendous. We are being squeezed by both sides of the supply chain.
“We are going to have to recover these increases somehow and are talking to retailers about upping on-shelf prices or paying us surcharges to cover costs.”
Chilled food giant Greencore said factory gate pricing rules meant retailers should ultimately have to shoulder increased petrol costs, possibly by paying higher prices for goods. However, smaller suppliers are sceptical. They believe big retailers will try to recoup losses by demanding suppliers drop prices.
Greencore admitted that was a possibility. “Realistically, retailers can go to the shelves and put prices up or they can squeeze manufacturers,” said a spokesman. He said distributors most likely to be hit were those conducting small drop deliveries over a wide area.
Geoff Dossetter, director of external affairs for the Freight Transport Association, said the smaller freight firms were “biting lumps out of themselves” as they confronted spiralling fuel costs.
“They have tried to pass on rises and the customer is telling them to go elsewhere. In the past 12 months alone, the cost of running a 40-tonne supermarket truck has risen by £3,200. That wipes out the profit margin at the bottom end of the chain.”
The organisation is continuing to press the government to decouple fuel tax for private and commercial vehicles to ease the pressure on logistics companies.
However, online retailer Ocado insisted that, because of efficiencies across its business, it had succeeded in driving costs down despite rising fuel prices.
Meanwhile, the Association of Convenience Stores said some smaller forecourt operators were finding it increasingly difficult to compete with fuel prices offered by the major supermarkets.
It said it had submitted complaints to the OFT regarding aggressive, possibly below-cost selling of fuel by the multiples. The evidence, which formed part of the ACS’ contribution to the OFT’s investigation into the supermarkets code of practice, was dismissed by the OFT.
Rod Addy