Businesses to pass on fuel costs

Supermarkets are expected to increase prices. Photo / APN

Businesses say that they will have to pass the costs of rising fuel prices on to their customers.

Steve Anderson, managing director of supermarket operator Foodstuffs, which operates New World, Four Square and Pak'n Save stores, said rising oil costs particularly affected its suppliers who packaged their goods in plastic - a by-product of the petro-chemical industry.

"This means that the wholesale costs [Foodstuffs] pay will eventually increase for many products and these costs will be passed on to consumers," said Anderson.

Don Braid, managing director of major freight and logistics operator Mainfreight, said the spike in fuel costs was not something the NZX-listed firm could absorb.

The company was currently charging a fuel adjustment factor of 11.2 per cent, Braid said, which would rise to 12.8 per cent on Monday.

"What that will ultimately mean is the price of food and retail products will increase because of the customers having to wear higher costs for transportation," he said.

Road Transport Forum chief executive Ken Shirley said this week that rising fuel costs were particularly challenging for smaller freight operators, whose customers often resisted adjustment charges.

"A lot of freight businesses are operating at a loss - they're not making ends meet," Shirley said. "The big are getting bigger and at the bottom end there are high levels of attrition."

Malcolm Johns, chief executive of bus operator InterCity Coachlines Group, said he watched the events unfolding in places like Libya with concern as the company had seen a 30 per cent increase in its fuel costs since Christmas.

And any drop in the New Zealand dollar's value against the greenback would only worsen the situation.

"If oil prices are going up and the kiwi dollar's going down then you get a double whammy effect on what you're paying for diesel and it definitely forces you into a constant review of prices and the services you're offering," said Johns.

So far, the New Zealand dollar has held steady against the greenback since the Reserve Bank made a 0.5 per cent cut to the Official Cash Rate on Thursday, trading at US$73.56c last night.

Johns said the company had not put its fares up yet, but prices were on daily review.

"My gut feeling is that our prices will rise within the next month as a result of the increase in fuel costs."

Mark Jakich, service manager at North Shore bus operator Birkenhead Transport, said that rising oil prices were not only increasing the family-owned company's diesel bill, but also affected the price of replacement tyres.

Jakich said their price of tyres, which contain oil, had gone up by more than ten per cent over the past few weeks.

It was difficult for Birkenhead Transport to increase its fares, as Auckland Transport - a Council Controlled Organisation - required the firm to justify any increase, he said.

"We're very hungry for work - we're chasing everything we can get at the moment in contracts."

Mainfreight's Braid said he was unsure whether the company could continue passing on fuel costs if the price of diesel continued its trajectory.

"We've got to make sure that the rest of the business is as efficient as it possibly can be so that we don't have unnecessary freight rates."

Anderson said rising fuel costs were having a big impact on the operating costs of Foodstuffs' supermarkets. "In the short term businesses will struggle to pay the rising costs associated with transport and in some cases the production of goods, but in the long term consumers will pay slightly higher prices to make up for this increased cost of doing business," he said.

Anderson added, however, that fuel costs were just one of many factors placing upward pressure on supermarket prices, including higher ACC levies, GST, the Emissions Trading Scheme levy and rising electricity costs.

Air New Zealand announced this week that it would increase its domestic and long-haul fares up by about 7 per cent, and that ticket prices to Australia and the Pacific would rise about 8 per cent to "recover jet fuel costs".

christopher.adams@nzherald.co.nz