Soaring oil prices fuel industry fears

May 14 2008 by Bill Gleeson and Alistair Houghton, Liverpool Daily Post

"That price has escalated again in recent weeks. We have to pass the cost on to our customers."

Mr Palmer said the company has agreements with customers to review prices every quarter to meet rising fuel costs. Now those reviews are held monthly.

He said that, despite reluctance from some customers, most under- stood the problem – but he warned those price rises would ultimately be passed on to consumers.

The Road Haulage Association says diesel costs have risen by 31% in the past year and now typically represent 40% of the operating costs of a 44-tonne truck.

Widnes Hauliers O’Connor Group, part of the wider Stobart Group, runs some 90 trucks from its base.

Its commercial director Peter Lea said: "Our spend on fuel is escalating all the time. It’s not getting out of hand, but everything we pay out has to be passed on to our customers.

"Ultimately, it’s the people who buy the goods that are transported in the trucks that pay for it – which is everyone of us, the consumers."

Mr Lea has been shocked by the recent price rises.

"Over the last month, it’s gone up by about 20p a litre," he said.

"We use around 7,000 gallons of fuel a week. By the time you multiply that out to the total spend, it’s quite a fearsome figure.

"We have to pass it on. Margins in transport are on a knife edge."

Stobart group is trying to minimise the impact of fuel price rises by taking empty lorries off the road.

In their trading results published this week, Stobart revealed that over the past year the haulage group has achieved average levels of 82% fleet utilisation, meaning just 18% of miles travelled were without a load.

This week, official figures reveal- ed that factory gate prices rose at the fastest pace in two decades, a fact that will inevitably feed into the prices paid by consumers for a whole range of goods and foodstuffs. Again oil prices were blamed.

THE rising prices were reflected in yesterday’s inflation figures, which reached 3%, well over the Bank of England’s target level.

Nor does it show any sign of relenting. Manufacturers and con- sumer groups warned there would be more to come, with a strong euro pushing up import prices.

Despite the relentless rise in prices in recent months, Professor Patrick Minford, an economist at the University of Cardiff Business School, remains optimistic that the high prices won't last. He believes prices at their current levels will cause industry to find alternative fuels or more efficient ways of consuming oil.

Prof Minford said: "These very high prices will unleash a substitution effect as they did with high oil prices in the late 1970s and early '80s. There will need to be quite a lot of investment in the energy sector before it can come in, but I don't think these high prices are going to last indefinitely. There will be a big backlash.

"After the price peak of 1980, the prices dipped quite a lot throughout the 90s.

"Substitution will take time to come through and prices will remain high until that happens. Much of that substitution will has yet to happen in China and India, where growth is still strong."

Nor does Professor Minford fear the inflationary effects of rising oil prices: "Countries that have a good monetary policy won't have a problem with inflation.

"China and India may well have a problem with inflation, though."

tonymcdonough@dailypost.co.uk