Small businesses face fuel time blues

By Orla Ryan
BBC Online business reporter

Up, up and away - will prices continue to rise?

A 3 pence-per-litre rise in the price of fuel has cost Richard Fry more than £1,000 ($1,820).

The road haulier ordered 38,000 litres of fuel at 68.2p per litre, last week, for a total cost of £25,916.

He last made an order on 26 July, when the same amount of fuel would have cost him £24,890, reflecting the then price of 65.2p per litre.

A week is a long time in a world of rising fuel prices and Mr Fry admits that his order was "very painful."

Few choices and high prices

Mr Fry is not alone.

The vast majority of British businesses find it hard to protect themselves from the impact of rising fuel prices.

The complicated hedging strategies favoured by larger companies are really only an option for those whose energy spend runs into millions of pounds a year, one energy expert said.

Mr Fry did consider the commodity market but was deterred by market volatility. "We are not a big enough firm to warrant that," Mr Fry said. The only way a small business can survive, he said, is to pass the costs on to the customer.

Now the invoices at Somerset-based Frampton Transport Services include a fuel escalator to take into account rising fuel costs.

Customers don't like it, but if Frampton Transport Services didn't do it the company would go out of business, Mr Fry said.

Rising road haulage costs have hit small businessman Mark Jeffries hard.

Is it better to fill the tank in France where prices are lower?

He makes concrete kerb stones in Yorkshire. They are a difficult item to transport and his monthly haulage bill is £3,500. A fuel surcharge on his haulage bill means that a 10% rise in oil prices can cost him £350 a month.

It is hard for him to pass on the costs to his own customers.

"The problem I have is that the work I am shipping now, I did quotations for in May and June. We are not the airlines, we don't have the right to immediately surcharge our customers."

The time to think of rising fuel prices is when you are negotiating a contract or tendering for new business, says David Bishop of the Federation of Small Businesses.

Many businesses are working on contracts they negotiated earlier this year, he says, and their profits are set to be eaten by rising fuel prices.

Learn from the big boys

In practice, the bigger a company you are, the more options you have.

Buy a fuel efficient vehicle and benefit from lower fuel bills

Not only can larger firms hedge their fuel prices, they can invest in other types of fuel in the long term or in energy saving equipment, says Nicholas Bojas, senior policy adviser at the employers' organisation, the CBI.

Mr Bojas advises smaller firms to liaise with their bigger customers, who could share their energy saving wisdom.

Alternatively, they could make things easier for them in other ways. A food industry supplier could arrange to distribute its food direct to the sales outlet, cutting out the trip to the distribution centre and saving fuel in the process.

Environmental group Friends of the Earth advises vehicle users to look at the fuel efficiency of their vehicles and to consider upgrading their fleet to improve the mileage per gallon and cut their bills at the pump.

Even if your business is not a heavy fuel user, rising oil prices can push your gas and electricity bills higher and it is here that small changes can yield big results.

One company cut its electricity bill by 8% by adjusting the time schedule settings on its air conditioning, said Carbon Trust, an organisation which offers advice on cutting carbon emissions.

Cheap fuel abroad

Most small businesses can lock into one year contracts with their electricity suppliers, says Direct Energy Purchasing's Corin Dalby. He suggests buying a voltage reduction unit, which reduces the amount of energy consumed and in turn, the bill.

A longer term solution to the vagaries of international oil prices might be lower UK fuel duty.

Road hauliers argue that fuel duty should be brought in line with lower duty on the continent.

There is one other option which tends to be favoured by those who travel to Europe regularly.

Truck drivers who leave Frampton Transport Services' Shepton Mallet head quarters are advised to leave the UK with as little fuel as possible, stock up in France with enough fuel to get to Spain and fill the tank in Spain, where fuel is cheapest.

Returning drivers are advised not to leave the continent without a full tank of fuel.

"They must come back into UK with as much fuel as possible," says Mr Fry.