Energy costs to fuel price rises

ROMY UDANGA
Last updated 05:00 10/03/2011
PUMPED: A transport lobby group predicts that higher fuel prices, caused by uncertainty in the Middle East and North Africa,  will cause retailers to push up prices to recover costs.
JOHN BISSET/Timaru Herald
PUMPED: A transport lobby group predicts that higher fuel prices, caused by uncertainty in the Middle East and North Africa, will cause retailers to push up prices to recover costs.

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Retailers will have to lift prices about 2 per cent to recover the cost of higher fuel costs, Road Transport Forum (RTF) chief executive Ken Shirley said.

Fuel costs are the highest in three years because of instability in the Middle East and North Africa.

Big oil companies have raised the price at the petrol pump of 91 octane by 6 per cent to $2.16 over the last nine days, and diesel prices by 13 per cent to $1.60. Although markedly higher than the low of $1 a litre in September 2009, diesel is still well under the previous high of $1.90 in July 2008.

Shirley said the 2 per cent-or-so likely rise in retail prices reflected only the impact of higher diesel prices to the cost of freight and it did not take into account the contribution of petrol prices on other costs of producing the actual goods "which could have a multiplier effect".

"Generally, the road freight component is between 5 and 10 per cent of the value of goods; conservatively, 5 to 6 per cent."

New Zealand Retailers' Association spokesman Barry Hellberg said most consumer goods sold in Wellington entered through Auckland and were then shipped on, mainly by road, to bulk distribution centres and ultimately to retail stores.

While the association was yet to receive feedback on how members would cope with the higher prices, he said "increased fuel cost will likely impact the cost structure. It would be an issue of concern". Ultimately higher petrol costs would be passed on to consumers.

Steve Anderson, managing director at Foodstuffs, which runs Pak'nSave, New World and Four Square supermarkets, said freight costs were planned in advance, so "for every cent that fuel increases, we as a business are required to absorb this cost in the short term".

Fuel made up about 15 per cent to 24 per cent of the cost of Foodstuffs' transport running costs and "while this is significant from a transport perspective, it is still only one component of the overall operating costs of the business", Mr Anderson said.

Increases in ACC and emission trading scheme levies, GST, rental costs and power prices "have been putting pressure on prices".

Luke Schepen, of Progressive Enterprises, which runs Countdown, Foodtown and Woolworths supermarkets, said it was yet to "crunch numbers" but high-volume businesses like theirs could spread fuel cost across products, and therefore might not need to lift individual prices as much as others.

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"The aim of the game for retailers is to be more efficient as possible in delivering products to stores to maintain prices and value to customers."

But the RTF's Mr Shirley said many retailers relied on contractors who had limited capacity to absorb fuel cost increases.

"Given the highly competitive nature of the freight industry and the very low margins that they operate on, there is no margin to absorb this cost."

- BusinessDay.co.nz

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