After months of pressure and political scandal, the UK government introduced a windfall tax on North Sea oil and gas at the end of May 2022.
Why is fuel so expensive?Fuel prices were already rising before Russia invaded Ukraine as global energy demand rebounded from the pandemic. But, as Russia is one of the world’s largest oil exporters, the conflict in Ukraine sparked fears about supply disruption, exacerbating the issue.
Since then, the sanctions slapped on Russia have pushed oil even higher. The US has banned Russian oil, while the UK and the EU are also phasing in an embargo.
In addition, crude oil is priced in US dollars. And with the pound trading near a two-year low against the dollar, oil is even more expensive.
How is it affecting businesses?
Transportation costsOf course, the most direct impact is on transportation costs. This could be the self-employed plumber who drives to jobs or the multinational retailer with hefty haulier contracts. Even if you don’t transport goods, the costs could filter down through the supply chain.
PricesWith these costs growing, firms may find themselves under pressure to hike prices. This could destabilise the competitive landscape if some can afford to absorb costs and others can’t.
Price increases could also alienate your customer base as shoppers become more cost-conscious.
WorkforceAs the cost of fuel rises, your employees may look for a pay rise to offset their surging travel expenses. Alternatively, they may want to work from home more.
Ways you can cushion the blow
Train your employees in ways to save fuel, both when they’re driving work vehicles and their own personal cars. Hypermiling techniques – such as driving slower and avoiding harsh braking or accelerating – can cut costs, particularly when scaled up.
Educate your employees
Reassess your routesTake some time to evaluate whether you’re managing travel as efficiently as possible. Are your routes as direct as they can be? Could you cut down on the frequency of deliveries? Analyse what you’re currently doing and seek out opportunities to optimise.
Outsource your operationsIf you’re managing your own fleet, it may be more economical to outsource to a specialist.
A dedicated haulier or delivery firm could have the size and resources to better insulate it from rising costs. Additionally, you won’t need to pay for vehicle maintenance and insurance.
Working from homeIf your employees can work from home, considering letting them do so. By reducing their travel costs you’re helping them and reducing the pressure to increase their wages.
Cutting costsFinally, you can consider other ways of cutting costs to offset the rise in fuel. This could be by budgeting more effectively, using AI technology, or working with a currency specialist for your international payments.
Unfortunately, analysts expect fuel prices to remain high for quite some time. The war in Ukraine looks set to grind on and the EU and UK oil bans are yet to take full effect.
Will prices come down?
In addition, summer is peak driving season in Europe and the US, so demand is likely to increase. And as China emerges from recent Covid lockdowns, it too will want to buy more oil, pushing prices higher.
The RAC has called on the government for ‘drastic action’, such as cutting fuel VAT or bringing in another fuel duty reduction. Whether No 10 is able or willing to do more remains to be seen.
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