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Increased cost pressures driving uncertainty over decarbonisation targets

Inflation continues to threaten business.

The Consumer Price Index (CPI) figure rose once again in February standing at 10.4%, up from 10.1% in January 2023. As a result, like every sector of the UK economy, the logistics industry is facing increased cost pressures.


The 85% reduction in energy support for business, announced in January, is driving further costs to the sector at a time of high inflation, with average gas and electricity market prices only 35% lower compared to when the energy support scheme was originally announced.

“Operating on narrow profit margins, and with SMEs accounting for approximately 99% of the industry, this increased financial strain will be a challenge for operators throughout 2023,” said Kate Jennings, Director of Policy, Logistics UK, (pictured above) “particularly as businesses are looking to invest in the transition to net zero, a finite target driven by government deadlines.”  


Although many of Logistics UK’s members have expressed their enthusiasm to decarbonise, the rising costs of charging electric vehicles, as well as costs of over £1 million to upgrade depot power supplies to enable electric vehicle charging, will make the transition hard to achieve in the specified timeframe.

Uncertainty remains over how HGVs are to be decarbonised, with concerns over preferred fuels and refuelling options, as well as costs. However, in practical terms, Low Carbon Fuels (LCFs) provide a viable option for reducing carbon emissions by up to 80% with immediate effect, without significant vehicle modifications needed.

“One of the main barriers to their uptake – in addition to the lack of infrastructure – is the high cost of these fuels,” Jennings said, “It was disappointing to note that within the Spring Budget announcement, the HGV levy is to be introduced from August 2023. With no mass-market solutions to Euro VI currently available for HGVs, the levy will act as an additional tax on businesses already under financial strain and will utilise funds that could otherwise be invested in decarbonising operations.”


Logistics businesses are also facing an increase in total vehicle operating costs, which have risen by 12.6% (for the 12 months to 1 October 2022).

“The sector simply cannot continue to absorb these rising costs and successfully decarbonise operations at the same time,” Jennings said.

The industry was encouraged by the government’s recent decisions to retain the 5ppl Fuel Duty cut – to have increased it could have resulted in further inflation spikes – but is calling for further government support in the form of an evidence-based long-term LCF strategy and a fair and equitable approach to funding depot charging.

“The next 12 months will prove to be crucial, financially, for many businesses – and Logistics UK remains committed to working with members and government to ensure the sector can continue delivering for the nation,” Jennings concluded.


Published On: 13/04/2023 16:00:21


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