On Monday 9 March, the price of oil surged to above US$110 (£84) for the first time since Russia’s invasion of Ukraine in 2022.
Recent oil price spikes are a reaction to rising tensions in the Middle East. The threat of prolonged uncertainty surrounding the conflict could mean that we are to expect further uplifts, or elevated fuel costs for an unknown period. UK operators need to prepare for the impact of fuel price fluctuations and be aware of the impact that can have on operating costs.
Fuel usually represents one of the largest expenses for UK coach and bus operators. Any significant fluctuations in the cost of diesel could push those already working on extremely tight margins to walk a dangerous line towards non-viability.
Industry voices have already made urgent calls for discussions with the UK government on the back of a 16.25% lift in bulk fuel prices seen over the last week or so. They say that those rises represent a serious risk to the viability of operators, as well as serious risks to the wider national economy.
What can be done to pass on increased costs?
One way for UK coach and bus operators to remain operationally profitable in the current market could be to implement a fuel surcharge.
A fuel surcharge is a temporary, additional fee added to coach hire rates and bus fares (where applicable) to account for fluctuations in fuel prices. It does not represent an increase; rather, it is a cost recovery mechanism to ensure that operators are covered in periods of significant fuel volatility.
Since COVID and Brexit, a lot of operators have revised their terms and conditions to allow surcharges in events such as these. That should be your starting point. If your terms already allow this, then now is the time to rely on that clause to pass on the additional costs to customers.
If you do not have such a provision, then you may wish to review your terms to include it to protect the business in the future. Many standard-form conditions of carriage do not contain such a provision.
If you do not have a surcharge clause and wish to implement changes on contracts already agreed with your customer, specific advice should be taken before doing so. Ultimately, a contract can be renegotiated, but that takes both parties to agree to the new terms.
How to calculate a fuel surcharge
Operators can calculate the fuel surcharge in several ways:
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- As a percentage of total price
- As a fixed amount per mile or journey
- Via a formula (published for transparency) linked to a recognised fuel price index.
Examples of operators in the freight and logistics sector include FedEx, UPS, and DHL. Logistics giant Yodel by InPost is currently operating a fuel surcharge of 10.5%, which is linked to the consumer price of diesel.
There is an opportunity for coach and bus operators to mirror this approach and implement cost recovery mechanisms now. Approaches such as a fuel surcharge could be the difference between those businesses being on or off the road during this period of market uncertainty.
Source: RouteOne