Since mid-February, diesel prices have surged from around $1.75 per litre to north of $3 at the pump, and the ripple effects are moving through supply chains at speed.
In April, the Fair Work Commission’s (FWC) Road Transport Contractual Chain Order – Fuel Cost Recovery – 2026 came into effect, requiring major businesses to adjust transport operator compensation at least fortnightly.
Businesses that rely on freight and logistics need to understand what this means in practice, and how to respond in a way that protects both their bottom line and the transport partners keeping their supply chains running.
What do the numbers mean?
Peter Jones, Managing Director of Prological, has been working through the detail with clients over the past several weeks. “From mid-February to now, diesel has almost doubled,” says Peter. “The increase is huge for line-haul operators, where fuel is somewhere between 30% and 40% of the operating cost for the transport provider.”
The federal government’s response – halving the fuel excise at the pump and removing the road user charge of around 20 cents per litre – provides relief, but not enough to offset the full rise. When those measures are factored in, the net cost of diesel is still sitting at around $2.50 per litre, depending on what day we are looking at. “That’s still a significant increase,” Peter says. “It will still have a big impact on the transport provider.”
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Global dynamics – the ongoing Strait of Hormuz disruption, OPEC decisions, continued US-Venezuela fallout – mean prices are unlikely to moderate in the short term. “But there’s no way we’re going back to $1.75 in the next six to eight weeks,” Peter says. “We may get to some moderation, but that’s still going to be a long way above $1.75.” He acknowledges the downstream impact of inflationary pressure beginning to reach consumers, but notes it’s too early to say if there’s a risk of a “mini recession”.
Managing change on top of existing surcharge arrangements
For businesses managing freight costs, understanding the right fuel surcharge position is more complicated than it appears.
Fuel’s contribution to freight cost varies significantly by task. Peter notes that it makes up around 10–15% for metropolitan deliveries, 20–25% for intrastate work, and 30–40% for long-haul interstate.
Most businesses already had a surcharge in place before mid-February – set against a baseline from some earlier point – and the interaction of the excise changes with existing arrangements creates complexity moving forward.
Getting the surcharge position right is complicated. “It’s specific to your freight model and your partner arrangements, and it needs to be worked out on a business-by- business basis,” Peter says. “Then it needs to be discussed and negotiated with your service providers, who may themselves struggle to reconcile a precise, evidence-based number within their own finance systems.” Peter says he spent considerable time earlier this month working through the correct position for one client, including consulting with a senior accountant at a large transport company who was also uncertain how the government’s recent changes applied.
Businesses should ensure they are not paying more than they should, and equally, they should ensure they are not underpaying to the point where their transport partner is absorbing costs they cannot sustain. “There are two reasons transport companies fall over,” Peter says. “One is cash flow because of extended terms paid late. The second is not being able to recover upward movements in fuel increases fast enough.”
Businesses that withhold fair surcharges risk contributing to the failure of the partners their supply chains depend on. The FWC order has now made that a legal requirement. Businesses at the top of the contractual chain must ensure increased costs flow through to operators and subcontractors further down the line.
What businesses should do now
In the near term, Peter says the priority for businesses is getting across fuel surcharge positions. Understand the task type, the correct fuel cost contribution, and the net impact of the excise changes on your specific arrangements. Then engage transport partners directly and with transparency to ensure everything is fair and responsible.
For larger businesses, he notes that it’s worth examining what structural changes can be made to soften the impact of the fuel crisis. “This could be holding inventory in multiple states rather than shipping long-haul from a single central warehouse, or reducing fuel exposure at the distribution leg,” says Peter. Because of the level of investment, and time required, these changes aren’t feasible for everyone as they require infrastructure, third-party logistics partners, freight forwarding and inventory management changes.
“To import directly into the state where your goods are consumed, you need to have infrastructure there,” Peter explains. “If you don’t have it yourself, third parties offer a faster route.”
Barriers to EV adoption
The fuel crisis is accelerating conversations about the electric vehicle transition inside transport companies, but industry conditions in Australia mean significant adoption is probably still a while away. “There have been no big announcements from transport companies significantly transitioning to electric fleets in the last couple of months, but the topic has had much more airplay and discussion,” Peter says.
“A lot of transport companies don’t have the infrastructure to support electric vehicles to a level that
would make a difference.” To charge enough electric trucks to make a meaningful difference to a fleet, you need a significant amount of electricity flowing into the depot, which Peter says most depots don’t have. “Even purpose-built logistics facilities are running into grid constraints. The electricity infrastructure serving entire precincts isn’t being designed with this level of demand in mind.”
Australia’s right-hand drive market also places it well down the queue for electric truck R&D investment, with manufacturers concentrating development where demand and infrastructure are most advanced. And at a global level, battery resources are being directed elsewhere. “Whilst there are some electric trucks being built, the priority and the weight of direction for all of those rare earth minerals and battery packs are going into passenger vehicles more than electric trucks,” Peter notes.
It is a difficult time for all involved in Australian supply chains. In hard times, new ideas emerge, which once again will happen in response to this fuel crisis. The first step is for businesses to get a handle on what fuel surcharges they should accept, and what impact it will have on their network.
“The issue will be on every transport company’s agenda because of what’s happening with fuel cost,” Peter says. “The businesses best placed when this stabilises will be those that treat the crisis as a test of supply chain partnership – doing the work to understand the surcharge complexity, paying fairly, and beginning to plan for structural change.”
Cejay is a Content Producer for Supply Chain Channel, Australia's learning ecosystem created to fill the need for information, networking, case studies and empowerment for everyone in the supply chain sector.
