Expert comment: could £3-a-litre diesel become the next major shock to UK supply chains?

 Jonathan comments: “It is a scenario that businesses should at least be considering. President Donald Trump has publicly backed the idea of restricting US diesel exports as America grapples with high domestic fuel prices. The US administration has examined possible restrictions, although officials have subsequently indicated that a blanket export ban is not currently being prepared.

“So, why should UK businesses care? We can already see the warning signs. Diesel prices are creeping upwards across UK forecourts, with prices in some locations considerably higher than the national average. Consider the impact on just one HGV (heavy goods vehicle).

“Take a HGV travelling 80,000 miles annually, at eight miles per gallon, it would consume approximately 45,460 litres of diesel. At £2 per litre, that gives an annual fuel bill of approximately £90,900.  If we jump to £3 per litre, that rises to approximately £136,400.  In real terms, an increase of around £45,500 per HGV.  If this is scaled across a fleet of 100 HGVs, we see an additional fuel bill approaching £4.55 million. And those costs do not simply remain with the haulier.

“Higher diesel prices → higher freight costs → higher supplier costs → margin pressure → potentially higher consumer prices → further cost-of-living pressure.

“The consequences could reach almost every part of UK economic life: supermarkets, manufacturing, construction, agriculture, e-commerce and countless other sectors that depend upon road freight.

“However, there is another dimension businesses should consider, especially if this is going to be a longer-term impact.  At £3 a litre, organisations may need to reconsider how their supply chains operate.

“For example, consider if products really need to travel hundreds of miles and explore if deliveries could be consolidated. Also, could sourcing become more local, could rail/water replace some road freight, could route optimisation and alternative fuels reduce exposure, and does holding slightly more inventories become economically preferable to frequent just-in-time deliveries? These are no longer simply operational questions, but questions of supply-chain resilience.

“So, a geopolitical event and potential policy decision thousands of miles away can travel rapidly through our supply chain: from a refinery to a tanker, to a UK haulier, to a distribution centre, to a supermarket shelf and ultimately, the price will be paid by the consumer.

“So, perhaps the question is not simply what happens if diesel reaches £3 or even £4 a litre, but how resilient our supply chains would be if it did.”