Fuel prices and profitability

We’ve all been a little bit more cheerful when filling up our cars recently, but spare a thought for logistics companies, one of which, the Stobart Group, buys around 170m litres of diesel and jet fuel annually. Famous the UK over for their Eddie Stobart lorries the Stobart Group are one of the UK’s largest logistic and infrastructure firms. Surely they must be beside themselves with happiness that the cost of fuel is going down?

Maybe not, Ben Whawell chief financial officer of the group explained to the Telegraph newspaper recently that fuel prices didn’t have too much impact on their profitability. Whawell said. “We pass the savings on to our customers so we don’t necessarily see such a big gain either way.”

The price of everything

Nearly everything we buy in the UK has to be transported, so lower fuel costs should have an impact on the cost of living, and politically speaking Chancellor George Osbourne is being pressured to pass fuel savings onto consumers quickly, and prior to the election.

Economists are predicting that a fall to $40 per barrel could add 0.6 percent onto the UK’s GDP this year. Oil analysts even believe oil could fall below $35 per barrel. If other haulage firms like the Stobart Group all pass savings onto customers the price of our supermarket shop could drop considerably. This will boost spending and help the economy as well as business owners.

28 million cars

According to the RAC there are 28 million cars in the UK and they suggest that car owners collectively will be £4bn better off if prices remain near current levels. That equates to around £140 per year for the average motorist.

Petrol is now ready to drop below the £1 per litre mark for the first time since May 2009. The big four supermarkets Tesco, Morrisons, Sainsbury’s and Asda are already poised to enter a price war as and when prices drop further, and some fuel discounting is already in evidence in the supermarket sector.

Energy bills, airfares and interest rates

The drop in the price of fuel could also help offset the interest rate rise that has been laying in wait for some time. However, the Chancellor needs to remain vigilant and make sure that firms are passing on savings. There’s only benefit to the UK if falling costs are passed on.

The pressure on energy suppliers to pass on any savings to customers is also building. The energy market hasn’t had an easy time since the start of recession, with rising prices coming at the worst time. If power companies choose to pass on savings to customers this will be good news for UK householders and much needed good publicity for the providers.

Help for business

Small and medium sized businesses are also set to benefit from falling oil prices. Money saved on fuel can be used to expand businesses and invest in more staff. Again, like consumers, SME owners are hoping the savings are passed on and the sooner, the better.

About the Author

Having worked in financial services for over 36 years, Andrew Darling is a specialist in invoice discounting, factoring and trade finance solutions. He currently manages the development of business with higher turnover companies at Bibby Financial Services, specialising in corporate finance for businesses with turnover of £5 million or more.

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