Hormuz Disruption: The impacts fleets need to be aware of
Since the beginning of the conflict between the United States and Iran on Feb 28th, marine traffic passing through the Strait of Hormuz has been at an all time low.
This has left major trade ports - like Dubai, Abu Dhabi, and Doha, at a complete stalemate - cutting off much of the world’s supply of crude oil, natural gas, and essential raw materials.
Immediate shockwaves were felt right across the global economy - with fuel prices soaring to record highs as crude oil surpassed $115/barrel in early April, and experts raising concerns for energy, food, and pharmaceutical supply chains.
For over 20 years, sopp+sopp has worked with some of the UK’s best-known fleet operators to keep their vehicles moving, reduce the cost & inconvenience of incidents, and help them optimise their strategies to the ever-shifting market.
In this article, we discuss how the Hormuz closure is impacting fleet operators & their supply chains - from unpredictable fuel costs, to upwards pressure on vehicle repair premiums.
“The Hormuz crisis has left fleets feeling exposed to volatile & unpredictable costs.
Uncertainty around if or when things may stabilise is making it challenging for operators to forecast bottom-line costs even weeks into the future, and even more challenging to mitigate the impact.”
- Callum Langan, Managing Director
The Strait of Hormuz Closure: How is it impacting UK fleets?
Here are some of the key impacts the closure of the Strait of Hormuz is having on fleet operators and their supply chains - from rising fuel costs, to upwards pressure on repair premiums.
#1 - Fuel prices increasing day-to-day operating costs
While most of the UK’s oil is sourced from Norway, the North Sea, and the UK, the Hormuz closure has sent shockwaves across fuel markets worldwide.
At-pump diesel prices have risen by an astonishing 49 pence-per-litre at UK forecourts, exposing commercial fleets to immediately higher operating costs with no way to mitigate its impact.
While some larger fleets benefit from their own bunker-stored fuel supply, most allocated fleets, logistics operators, and delivery businesses rely on volatile retail prices.
According to the RAC, prices are finally beginning to stabilise as of late April - however, they remain much higher than fleets could ever have projected at the beginning of the year, leaving a stark mismatch in budgeted vs actual operating costs.
#2 - Energy uncertainty adding pressure to repairer premiums
UK wholesale energy prices have risen dramatically since the closure of the Strait, with experts predicting commercial & household energy bills will rise as a result once the price cap is reviewed in July.
Any change in energy prices almost always impacts vehicle repair premiums - as a result of higher operating costs for workshops, and inflated parts prices due to increased manufacturing cost.
It therefore seems almost inevitable that, should the Strait’s closure continue, repairers will be forced to review existing menu pricing to account for higher expenses.
For fleets, this would not only mean a short-term hike in operating costs, but also long-term impacts on total cost of ownership for their vehicles - further harming planning and forecastability.
#3 - Cost uncertainty reducing fleet forecastability
Any change in fleets’ day-to-day expenses has significant impacts on operators’ ability to forecast and budget long-term costs.
As with any business, this can mean profits end up lower than projected, planned investments have to be curtailed, and - in severe cases - continuity is put at direct risk.
What sets the Hormuz closure apart from other economic events is the speed and unexpected nature of its development. Unlike other economic events, there’s simply no way for fleets to predict how expenses may be impacted in the coming months, weeks, or even days.
This means it will take more than marginal adjustments to fleets’ projections to factor in the potential economic fallout - forcing many businesses to reevaluate entire budgetary decisions.
#4 - Wider impacts for logistics fleets & their supply chains
While the most significant impact of the Strait’s closure has been on fuel supply chains, many other goods and resources have also been effectively cut off at the source.
The middle east is also relied upon as a key source of pharmaceuticals, industrial gases, and around 10% of the globe’s aluminium - further impacting operations for many connected industries.
For logistics fleets with a stake in manufacturing, medical, or connected industrial sectors - this could equate to a direct reduction in demand, harming revenue and placing key commercial contracts at risk.
“When one part of a supply chain hits a bottleneck, it’s natural consequence that the rest is impacted. With road fleets playing such a critical role in global trade, any disruption in goods supply or movement can impact their operations severely.”
Are fuel prices beginning to stabilise?
"Even if fuel prices begin to stabilise in the short term, this latest crisis serves as a clear reminder that global volatility is now a permanent feature of fleet cost management.
For operators, resilience will increasingly depend on reducing avoidable costs elsewhere in the ecosystem, particularly those driven by incidents, repair inefficiency and vehicle downtime."
- Chris Beeby, Business Development Director