Businesses advised to protect themselves against fuel price increase
Published by Anne Marie Hughes on Sat 09 Jun 12 @ 22:14
Scottish companies are being advised to consider setting their fuel costs now as a strategy to minimise the possible impact of the proposed fuel duty increase in August 2012. Treasury experts at Clydesdale Bank say it is important for businesses of all sizes to stabilise their future fuel prices.
Although the UK Government recently postponed the proposed fuel duty increase of 3p per litre until August 2012, fuel prices continue to fluctuate and remain within touching distance of the all time record high of 136.9p per litre set in May 2011.
Data issued by the AA (20th December 2011) revealed the average price for a litre of unleaded fuel in Scotland is now 132p with diesel users facing an average price of 141.9p per litre. Should prices remain at or around this level into 2012 it could mean fuel prices approaching, if not exceeding, an all time record high come August's fuel duty increase.
However, businesses can prepare for any fuel duty increase and fluctuating fuel prices by exercising a fuel hedging contract. Fuel hedging brings stability to a business' fuel purchasing strategy, allowing prices to be fixed for a set period removing the element of uncertainty.
David McGill, Head of Treasury Solutions at Clydesdale and Yorkshire Banks, said: "Even businesses using just 50,000 litres of fuel a month should be looking at the security provided by hedging, particularly during times like these when speculation over fuel prices is intense. Should the proposed duty increase go ahead in August, a business with this level of fuel consumption would be facing additional costs of £1,500 per month.
"Businesses should be taking this opportunity to review their fuel purchasing strategy and budgets. The obvious advantages of fuel hedging are the benefits of removing guess work from budgeting and relieving worries about possible sharp increases in fuel prices affecting cash flow."
The hedged fuel prices relate to the daily rates quoted by the Platt's Index, which is a source of benchmark price assessments for commodities like fuel. This hedged price is agreed at the start of the partnership between the company and the bank and will not deviate with any changes in the market price over the term of the contract.
David McGill said: "While average UK petrol prices have dropped from their record high of 136.9p per litre in May there is no guarantee that the downward trend will continue. The elevated prices of mid-2011 arose due to a combination of volatile factors, including unrest in the Middle East and economic uncertainty in the established high fuel consumption countries.
"Both these factors are still very much in play so it remains important for businesses of all sizes to stabilise their fuel purchases and be in a more secure position to manage their business."