The Price at the Pump and Its Impact on Business
Who Pays for the Fuel Cost Increases?
The recent spike in fuel costs will have over arching impact on the cost of distribution and delivery in all sectors of the supply chain, including deliveries to end users. While the cost of products may also be increasing due to energy costs related to fuel sources, the cost of delivery lanes will likewise increase. If a manufacturer was providing delivered pricing to their customers (e.g. distributors/wholesalers), you can be pretty certain that there will be a cost increase announcement indicating that rising costs associated with manufacturing are making it necessary to enact an increase (and that may be anywhere between mid single digit to low double digit percentage bumps). If the manufacturer was delivering with freight to be reconciled by the recipient at the time of delivery, depending on the class of product being shipped, the increase may be hundreds of dollars in increased freight expense.
These increases are rarely absorbed by either the manufacturer or their wholesaler. The cost is inevitably shifted to the end using customer. In the case of foodservice operators, the restaurateur is confronted with raising cost of food, packaging, linens and ancillary supplies when fuel costs increase, the same as when supply and demand forces increased costs from manufacturers or when food stores or raw materials become constrained by productivity issues, poor crops or yields or a disrupted supply chain as being experienced presently.
But the end user in food service outlets, grocery outlets and even other industries that take in supplies from distributors or wholesalers, may face a "double dip" in the case of rampant fuel increases. In addition to being faced with industry wide cost increases of product and services, there is often the application of "fuel surcharges" during times of steep fuel cost increases. And the signaling is usually the repeated conversation in the media of "the prices at the pump" even though most of the delivery process is managed by carriers and delivery vehicles using diesel fuel that is most often negotiated at bulk rates by fuel services, and not at the pump. This reality however, will not detract from the strategy of those companies making deliveries to restaurants, stores, facilities, etc in their decision to enact new fuel surcharges, as an attempt to offset the increase in fuel expense they are facing in their daily operations.
It is difficult to condemn this strategy in a logic based assessment of the practice. Rising fuel costs are not the fault of the delivery agent, whether the carrier from the manufacturer or the delivery vehicle from the distributor/wholesaler. They are confronted with the higher costs enacted by the fuel providers, who are at the mercy of the petroleum market place. And if your business requires a delivery of food, packaging, finished goods, dry good service or supplies necessary to run your operation, that fuel surcharge is on the invoice (once enacted) and in most cases, it is going to stay on all invoices for the foreseeable future. Because your business needs that delivery, there is little choice but to accept the reality of paying an additional fee to receive the materiel that keeps the business running.
As mentioned, there is a likelihood that many businesses are already paying a fuel surcharge to their supply partners. In fact, it may have been applied several years ago when we experienced the last fuel price volatility event (prices were increasing from 2011 to 2014). Business owners may have become accustomed to seeing the fuel surcharge line on the invoice, not unlike the sales tax line, in effect the fee is hiding in plain site. But has that number increased over the years? More importantly, in years where fuel pricing subsided and stabilized, did that number decrease or disappear? Highly unlikely. The common practice was to leave it there. The consideration being that with it there as a fixture on the invoice, if there was another fuel price crisis, it would be easier to elevate the fee charged, than trying to reintroduce a new (and potentially higher) fuel surcharge, if it had been previously removed.
Another tactic being employed by the delivery agents is the application of other fees, such as "small order processing fees" or "service fees" and these often have few parameters for their introduction. This is not to say they are arbitrarily enacted, but without much fanfare, the determination is made that orders under a certain threshold are now considered "small orders." Or the frequency of delivery has now escalated the customer into a "service fee" zone. Rarely, are these add ons broadcast to the customers before application. They appear, arcanely it may seem, on the invoice. Getting an answer from the supplier's team as to why or what created the new charge, can be frustrating.
But this is what entrepreneurs relying upon deliveries from their vendors and suppliers must confront, because in many (if not most) cases, these fees, fuel surcharge, small order, service are negotiable. In almost every case, there is discretionary authority held by the supplier's management that can reduce, suspend or outright waive these fees. However, there needs to be value in that proposition. Offers to increase the drop size, or reduce the delivery frequency or improve the payment profile, can go a long way as elements of a compromise.
The key to success for all is to recognize there is a partnership, but it is okay to demand transparency and then seek reasonable middle ground to make the decision being considered sustainable and amicable. Sometimes you do have to give a little to get a little. And the reality is that most suppliers that offer delivery to their customers are enacting these fees, to offset the heightened expense loads being faced. If the partnership is a good one, defining how the "pain" can be shared and for how long, can strengthen that partnership even further.
