Fuel prices have hit the news again this week, with both The AA and RAC Fuelwatch reporting that forecourt prices have risen sharply. We explore the reasons behind the hike, the impact on business fleets that rely on fuel to operate, and our tips for reducing overall fuel spend.
Why have fuel prices risen?
The answer is not a simple one. And we should stress that we are not market analysts. However, there are lots of factors at play here – most of which are down to geopolitical uncertainty around the world. Here’s our top-level insight into what’s going on:
At the crux of the recent price rise lies the high cost of brent crude oil, which has a direct impact on pump prices. The Russian invasion of Ukraine in 2022 sent commodity markets soaring, pushing up the wholesale prices of oil and gas. The ongoing conflict has resulted in sanctions and damage to Russia’s oil infrastructure, temporarily reducing Russia’s ability to produce (and export) products like diesel and gasoline. Analysts are also keeping an eye on the impact of conflicts in the Middle East.
In March, the Organization of the Petroleum Exporting Countries (OPEC), which includes the world’s biggest oil-producing countries, announced that cuts in the production of oil would continue into Q2 of 2024. Since 2022, OPEC has made cuts in the production of crude oil of 5.86 million barrels a day. This volatility and uncertainty of supply has impacted crude oil markets and continues to push prices higher.
As we head towards the summer season, trends show an annual increase in demand as people travel more. That, combined with the weakening of the pound versus the US dollar has contributed to rising fuel prices in recent weeks.
Rising fuel costs and the effect on small businesses
Business vehicles, and the cost of fuel, are already a major expense for many UK businesses. Against a backdrop of tight economic conditions, businesses face additional pressure due to the rising price of fuel.
- As fuel prices go up, the cost of doing business also increases. For businesses that heavily rely on transportation, such as delivery companies, manufacturers, and those who import and export goods, there’s a tough decision about whether to either absorb the cost or pass it on to customers.
- The cost of fuel also impacts consumer purchasing power. This can lead to a decrease in consumer demand, which can negatively impact the economy as a whole.
- As well as the direct impact of rising transportation and lower consumer spending, rising fuel costs can impact the supply chain, with costs passed on to small businesses.
- Fuel costs can fluctuate daily, making it tough to forecast costs and manage cash flow. For small businesses, the ability to accurately forecast costs can make a huge difference when it comes to profitability in the longer term.
How can businesses reduce the impact of rising fuel costs?
Consider switching to a fuel card.
One of the best ways to save money off forecourt fuel prices is to sign up for a company fuel card. The process is simple. Find the right provider. Sign up. Pay for fuel using your shiny new card, and reap the benefits of lower fuel costs and HMRC/VAT-compliant monthly invoicing.
Fuel savings
Most fuel cards will offer you savings vs forecourt prices. In 2023, customers of The Fuel Store saved an average of 12.5 pence per litre off the pump price – which can add up to a substantial saving for a small business or a large fleet.
Improved cash flow
Perhaps not a direct reduction in the cost of fuel, but fuel cards can help improve your business cash flow. Monthly invoicing for fuel allows fleet managers to keep tabs on fuel spending, and budget for fuel costs, helping to manage cash flow more effectively.
Improved productivity
Again, a softer benefit, but they say time is money! Using a fuel card means less employee time is spent on processing expenses or recording fuel spend. With less time needed for admin, employees can spend their time on activities that add to the bottom line!
Use telematics to reduce fuel costs
When it comes to return on investment, the cost of implementing a telematics system covers itself quickly.
Telematics systems can be used to gather and analyse data about driver locations, fuel consumption, RPM and braking habits. By understanding the data, fleet managers can build a picture of driver behaviours, identify areas for improvement, and significantly reduce fuel costs.
By combining GPS tracking with live traffic data, drivers and fleet managers can optimise route planning. Accessing this data allows companies to schedule and reroute drivers more effectively, reducing idle time and fuel consumption.
Switch your fleet to Electric Vehicles
Ok, this isn’t a quick win like the other two, but it still deserves a mention. Making the switch to an all-electric (or mixed) fleet is a surefire way to avoid rising fuel costs. The initial outlay to switch to an electric fleet is undoubtedly a big one, but there are plenty of grants available which can reduce the costs significantly. The cost of powering the vehicles, as well as ongoing maintenance charges, is lower than your average diesel or petrol vehicle, too.