Continued fuel price shocks leave emergency surcharges stuck in overdrive
Soaring oil prices are sending a further wave of fuel increases through global logistics, leaving shippers exposed not only to higher transport costs, but to emergency pricing mechanisms that can change their freight bills from one week to the next.
With oil above $100 a barrel amid continuing conflict in the Middle East, fuel surcharges are climbing across all transport modes. But perhaps more significant is what has happened to the way some of those costs are being passed on.
Weekly fuel adjustments introduced as exceptional measures earlier in the energy crisis have, in some markets, now been running for around six months - and the latest oil-price surge is pushing them sharply higher again.
Transport Intelligence (Ti) analyst Thomas Cullen noted this week that oil prices had increased by around $50 a barrel over the past year, with November Brent trading at around $107.
And the threats to supply extend beyond declining vessel traffic through the Strait of Hormuz. Ti noted that attacks had also targeted the Abqaiq-Yanbu pipeline, Saudi Arabia's most important means of exporting oil without using Hormuz, while Ukrainian attacks were putting further pressure on Russian oil supplies.
Although bunker fuel supplies have so far remained relatively robust, Ti warned that could change over the coming months, arguing that low reserves and disrupted supply meant the oil market appeared to be approaching a "crisis point".
The prolonged volatility is visible in the mechanisms freight operators are using to recover their costs.
DHL Aviation's ex-Hong Kong long-haul cargo fuel surcharge will rise to HK$12.30 ($1.58) per kg from 21 September, from HK$11.30 this week and HK$6.80 in early July - an increase of more than 80% in around 11 weeks.
The latest calculation is based on an IATA Asia and Oceania jet fuel price of $169 a barrel.
Normally DHL's ex-Hong Kong surcharge is calculated monthly, but when the jet fuel index exceeds $100.99 a barrel it moves to weekly calculations. The surcharge has remained on that weekly mechanism continuously since the end of March.
A similar picture is apparent on the ground. Maersk told haulage customers in Greece in March that, because of the Middle East situation and rising fuel costs, it was adopting an "exceptional measure", replacing its monthly fuel surcharge review with weekly calculations.
Six months later, that "exceptional" arrangement remains in place, with Maersk again telling Greek customers last week that it would review the surcharge weekly "for as long as it is necessary" to recover its increased costs. The truck surcharge is currently 15%.
Its Nordic emergency inland fuel mechanism is also calculated weekly and the increases there show how quickly costs can move.
In early July, Maersk's surcharge was just 1% in Denmark, 2% in Sweden and 5% in Estonia. From yesterday, those charges stood at 14%, 12% and 20%, respectively.
DP World has similarly retained a weekly Emergency Fuel Escalator on UK road and intermodal transport. After falling to 4.72% in July, it has climbed back to 14.86% this week.
The persistence of these mechanisms suggests one consequence of the prolonged energy crisis is a shortening of the lag between movements in oil markets and the prices paid by cargo owners.
Monthly fuel mechanisms give transport providers greater exposure when energy prices move suddenly between adjustment dates. Weekly calculations allow them to recover increases much more quickly - but transfer that volatility equally rapidly to customers.
But not all logistics companies have the same ability to pass it on.
German road haulage association BGL yesterday warned chancellor Friedrich Merz that diesel had increased by around €0.60 per litre since the latest escalation in the Middle East.
It calculated that a truck travelling 10,000km a month was consequently facing €1,800 in additional monthly costs. Across a 50-truck fleet, that would amount to €1.08m a year.
But BGL said small- and medium-sized hauliers were frequently unable to, or could only partially, pass those increases on to customers, leaving operators in an already low-margin industry to absorb part of the shock themselves.
It has called on the German government to remove what it describes as a double CO₂ burden on road transport and introduce a commercial diesel scheme, similar to those operating in several other EU countries, under which hauliers could reclaim part of the energy tax paid on fuel.
That highlights an increasingly uneven allocation of fuel-price risk across logistics: large operators with formal indexation mechanisms can rapidly transfer much of the increase to customers, while smaller operators negotiating individual transport contracts may find themselves caught between rising diesel costs and resistance from shippers.
And where the cost can be passed through, the problem moves further down the supply chain.
Nishith Rastogi, founder and CEO of transportation management technology company Locus, acquired by IKEA's largest franchise retailer Ingka Group last year, warned today that higher oil prices and freight costs would put additional pressure on retail margins.
"For retailers, this creates further pressure on margins and may require a combination of selective price increases, sourcing adjustments and more cautious replenishment planning," he said.
"Energy and logistics shocks can move rapidly through the supply chain and ultimately influence the prices consumers see."
Higher fossil-fuel costs could also alter the economics of how cargo is moved; Maersk's Nordic emergency surcharge does not apply to electric trucks or rail for example. Sustained fuel inflation improves the relative cost competitiveness of transport less exposed to oil prices.
In shipping, research published today by the Global Centre for Maritime Decarbonisation and Boston Consulting Group shows how sensitive the alternative-fuel equation is to cost.
Its modelling found methanol and ammonia could together meet 36% of global fleet energy demand by 2050 if the cost of green hydrogen fell to $2/kg, compared with just 4% if it remained at $3/kg.
But for shippers the immediate impact of the oil shock is that fuel increases that once took weeks to reach freight bills, can increasingly arrive within days, while operators unable to pass them on face a direct hit to margins.
