The UK Government made an unprecedented move reducing motor fuel duty by 5p per litre (equating to 6p per litre taking into account of VAT) on Wednesday 23rd. Apparently the biggest reduction in the last 20 years. But was it enough?
Pull up a chair and grab a cup of tea and a biscuit:
The duty rate reduction of 5p per litre came into effect from 6pm on Wednesday night. However, the duty reduction only applied to tanker loads of fuel that had exited a refinery or inland terminal (bonded area) after 6pm. This is key!
Petrol and diesel delivered into a forecourt after 6pm, that had left a terminal or refinery gate before 6pm would not benefit from the duty reduction.
This led to a barrage of social media commentary as not every petrol filling station dropped their pole sign prices at 6pm for reasons detailed above.
Majority of supermarkets immediately dropped their pole sign prices by 6p per litre at 6pm. This was a strategic commercial decision and ultimately they have deeper pockets than the independent fuel retailer to take a hit and lose 5p per litre. That said, the average supermarket forecourt has an annual volume throughput in excess of 10 million litres, compared to 2.5 million litres for an average independent fuel retailer so that volume is quickly replaced in a day or so. Don’t feel too sorry for them, they have been benefitting from a 2 to 3 week cost price lag in a rising market!
On Wednesday before 6pm Ascona had 16 loads of fuel delivered to our sites across the UK. That’s around the 600,000 litres of fuel. Reducing our pole signs by the 5p per litre duty reduction would have cost £30,000. I took the commercial decision to sell through the older product without reducing our pole signs to maintain an already distressed retail margin that had been recovering from the previous weeks wholesale price increases where we had been attempting to price as close to the supermarkets as much as possible to retain volume. Retail volume sales across the UK have been adversely affected by the current market challenges.
Everyone is trying to make their fuel fill last longer!
Once our new loads of fuel had been delivered and the older product had been sold through the pumps, we of course dropped pole sign prices by 6ppl (5p duty plus VAT) and match as close as possible to the supermarkets where commercially viable.
A few newspapers (including Western Telegraph) failed to grasp the challenge of the independent fuel retailer sector and appeared to suggest fuel retailers were not immediately passing on the duty rate reduction and profiteering! That said I can only comment on Ascona’s forecourt network. For once the RAC and AA appeared to understand the market challenges.
Over the last week we had some sites losing over 4p per litre on diesel sales when blending the margin with the commercial fuel card rebates. The Independent fuel retailer “enjoys” (tongue in cheek!) an extremely low rebate of between 1.2ppl to 1.5ppl when a customer uses a commercial fuel card for payment (excluding bunker cards - don’t start me off on bunker!); however, the rebate is added to the previous (load) cost price. In a fast rising near vertical market some forecourts will actually lose money accepting commercial fuel cards. We did! Ultimately this “can“ result in higher prices for diesel on pole signs to offset the loss. Who makes the real margin? Have a guess.
So next week, more bad news as refined product costs for petrol and diesel have risen by approximately 5.8p and 12.5p per litre respectively. These new increases will be applied from Monday (tomorrow) for all loads delivered next week (based on the previous average weeks refined product costs). In effect totally wiping out the duty reduction imposed by UK Government.
Was the duty reduction enough? In my personal opinion? No. The temporary duty rate reduction should have been in the region of 15p per litre as a bare minimum and closely monitored as the market evolves. This is a big ask!
By the end of next week we will start to see pole sign prices rise above £1.80 per litre, this of course excludes motorway service areas.
Happy Mother's Day!