Fuel represents a significant operating cost for transport providers, particularly in long-haul trucking and heavy freight operations. For many operators, diesel costs can represent 25–35% of total operating expenses. When fuel prices rise, logistics companies typically implement fuel surcharge mechanisms to recover these costs. While this helps maintain operational viability for carriers, it also means cost increases are rapidly transmitted to shippers, manufacturers, and retailers.
The result is a cascading effect:
-
Higher transport costs for manufacturers moving goods from production facilities to distribution centres.
-
Increased wholesale distribution expenses for retailers moving inventory between warehouses and stores.
-
Rising last-mile delivery costs, particularly in e-commerce supply chains.
Over time, these cost pressures contribute to higher shelf prices for consumers, particularly for goods that are bulky, perishable, or frequently replenished such as groceries, construction materials, and consumer staples.
Over the past two decades, many logistics networks in Australia have been optimised for cost efficiency rather than shock resilience. Centralised distribution centres, lean inventory strategies, and just-in-time replenishment models reduce holding costs but can make supply chains more vulnerable to external shocks, including fuel volatility.
If sustained fuel price increases persist, companies may need to reconsider network design strategies such as:
-
Regionalising distribution centres to reduce transport distances
-
Increasing inventory buffers to reduce transport frequency
-
Shifting freight to rail or coastal shipping, where possible, to reduce fuel exposure
However, these changes involve significant capital investment and long lead times, meaning the logistics sector's ability to adapt quickly is limited.
------------------------------
Dylan Palmer-Givan
Supply Chain Leader
dylan.palmer-givan@smith-nephew.comAustralia
------------------------------