Higher fuel prices don’t just happen in a vacuum. When prices go up, transport operators experience the immediate consequences through their day-to-day costs, reduced margins and customer discussions. A route that was profitable last month may not be as profitable when it costs more to drive it.
If your business relies on trucks, vans, plants or regular deliveries, then fuel isn’t just another bill in the pile. It’s one of the most volatile components of a transport operator’s cost base, and its price can change faster than freight rates or service fees can be adjusted.
Account for fuel costs before payment arrives
In transport work, fuel costs occur before payment is received. Vehicles must be fuelled, drivers must be deployed and work must be done, regardless of whether an invoice has been paid yet. This can put pressure on cash flow, particularly if work has been priced far in advance.
And this isn’t just an issue for long-haul carriers. Businesses involved in local deliveries, construction material supplies, waste collection, mobile trades and service fleets are also affected by fuel price increases.
Higher fuel prices can impact:
- The cost of every job driven
- Fixed-rate contract profitability
- Driver rosters and vehicle planning
- Customer discussions about pricing
- Working capital for vehicle upkeep and new purchases
Even small price increases, repeated over multiple journeys, can add up to significant additional expenses over a billing period.
A company doesn’t have to be losing money overall to suffer the consequences of rising fuel costs. More frequently, what happens is that the margin on individual jobs decreases without much prior notice. Jobs continue, vehicles continue to run, and the bottom line remains stable, but fewer profits are being earned from each job.
This is especially challenging when you’re competing for work based on price. Immediately increasing your rates could result in lost work, whereas continuing to absorb the extra cost means your busiest period may not be as financially rewarding. The correct response varies depending on your contract terms, customer relationships, and your understanding of your own trip costs.
A 10% increase in fuel costs is a good reason to consider whether the profitability of your trips needs revisiting. Rather than wait until your year-end financial statements show an impact, it’s better to proactively plan for the future.
Build fluctuating costs into contracts
Fixed-price agreements (click here for more) give clients certainty, but they leave operators vulnerable if key input costs suddenly increase. It’s important to determine which costs are covered within the fixed price and which might require regular reassessment.
Some transport companies have a fuel surcharge system that adjusts their rates once operating costs exceed a certain level. Other companies periodically update their prices or break out delivery costs from product costs. It doesn’t matter how you do it so long as everyone understands what’s happening before the price rises and people start arguing about it. Keep the conversation simple. Customers will be more open to the idea of a price change if it relates to delivering their service.
Cut avoidable kilometres and idling
Fuel might not be within your control, but fuel usage is. Taking stock of how your vehicles are used might uncover avoidable kilometres, idling, and misused equipment. Some things to consider:
- Consolidate nearby drop-offs
- Reduce dead mileage
- Choose the right vehicle for the job
- Check tyre pressure and service history
- Minimise time idling while loading
- Consider consolidating multiple trips into one
This isn’t much use if your company only uses a vehicle from time to time and doesn’t have the option of combining loads. For those who run fleets, though, minor operational improvements can go some way towards maintaining margins.
Calculate each vehicle’s actual operating cost
If fuel prices are high, delayed maintenance isn’t an option. Worn tyres, engine problems, bad equipment, and substandard loading practices can all lead to higher fuel consumption. A vehicle may be keeping up the illusion of being active, but wasting fuel on every trip means the margin on every job is being slowly eaten away.
Maintenance records may also help you decide when it’s time for a new vehicle. If an old vehicle needs frequent repairs and uses more fuel, it may actually be cheaper to replace it. When comparing replacement options, businesses can also review available trucks through https://austruckmarket.com.au to find vehicles that better suit their operating requirements.
This doesn’t mean everyone must have new equipment. It means that the actual operating cost of a vehicle should be calculated, not guessed at.
Explain price changes before they take effect
Customers may realise that fuel costs affect the price of transport services, but they still expect to be given a heads-up and an explanation. Customers who are trying to run lean businesses might be annoyed at a sudden surcharge.
Tell customers exactly what’s going to happen, when, and whether it’s a one-off thing or part of a bigger rate change. Don’t leave them guessing that everything is being passed straight on to them. Just tell them what the change is. The best justification is a lack of one.
Invoices for fuel don’t give you all the information. You need to keep track of litres purchased, distance driven, load carried, and vehicle on a vehicle-by-vehicle basis, and then look at how much fuel it used for the same run over a period of time.
If there’s a big change, that could be due to a fuel card problem, a rogue fill, a leak in the tank or even a mechanical fault, instead of a general increase in price. By doing this, you can also start to see if a certain vehicle is still fit for purpose in terms of the job it does, and it gives you evidence when negotiating repairs, routeing or pricing.
Review the routes you run most often
Rising fuel prices are a sign that you should be reviewing your transport pricing regularly rather than only when costs become unmanageable. If you can monitor your routes, manage your vehicles properly, and set transparent pricing, you’ll be able to act without panic.
Review the fuel cost and margin for the routes you covered the most in the last month.
