Fuel prices have reached a new record as instability in the Middle East continues, Iran's decision to stop sending oil to the UK is bad news for motorists already hit by high pump prices and North East businesses now fear the worst. Stephen Cape reports.
THE record price of diesel and the high cost of unleaded fuel comes at a difficult time for North East business facing uncertain economic conditions.
The price of unleaded petrol is now at its the highest point since last May when concerns about the Arab spring sparked further concerns about supply and the cost to motorist will include a sizeable chunk of duty plus VAT at 20% which can add 60p or 70p to each litre.
The lifeblood of transport industry across the North East is fuel. With lorries achieving at best eight or nine miles to the gallon, the cost of running a fleet of trucks can run into millions of pounds each year.
And the rising cost of transport is loading more pressure on companies who are already struggling to compete in a challenging economic environment.
The prices are higher in this region than in more populous areas and companies have to travel further to reach markets further south. North East Chamber of Commerce research has shown that the region was shouldering at least an extra £85m fuel tax burden compared with London rates.
The prices clearly affect rural companies the hardest with petrol stations in scantly populated areas sometimes 10p a litre higher than in towns.
Fergusons Transport is a general haulage business in Cramlington and Washington. It runs a fleet of 120 heavy goods vehicles supplying a number of businesses such as Tesco, Nissan the car maker and the construction sector.
In 2010/11 the company set aside £5.2m to cover fuel costs but the bill increased to £5.7m, and this year it is expected to rise again to £6m.
Operations director John Arkel said: “It is very difficult. We are having to pass our extra fuel costs onto to our customers and they understand that. Our biggest outlay now is fuel.”
Fergusons’ fuel costs account for 39.3 % of its total costs.The bill for labour is around 30%.
Arkel said: “Unlike the motorist we get the VAT back because we are registered, but we still pay duty which is sizeable.
“Obviously if the price of diesel goes down our customers pay less, but it is very difficult because the higher fuel costs result in more expensive items like food, construction materials and cars.”
But it is not always easy to pass on costs. Thompsons of Prudhoe is one of the North East’s leading demolition and earthwork contractors using discounted red diesel in its off-road diggers and earthmoving machinery, and the full price white diesel in its on-road lorries.
Joint managing director John Burdon said: “Most of our work is fixed price contracts. So if we quote for a job in January and get the work in March even if the price of fuel has gone up we can’t pass it on. This makes it very difficult to predict what is going to happen to the cost of fuel.”
The company has a fleet of 72 HGVs consuming on average 50,000 litres a week. In the last month the price of fuel has risen by 3% and in the last three years so-called white diesel has risen by 40%.
What is more surprising is the cost of the far cheaper red diesel, which has a discounted tax rate, has risen by 86% over the same period and gas oil which is also used in vehicles has also gone up.
Burdon added: “It’s horrendous. We just have to absorb the cost of fuel rises which affects our bottom line.”
There are also mounting concern in the North East bus and coach industry that the current Bus Service Operator Grant, which refunds fuel duty for public transport firms, will be cut in phases by 20% between April this year 2015.
