Oil price hikes may slow distribution

Oil price hikes may slow distribution

Rising oil prices may soon hit IT distribution as stretched freight companies pass on their cost increases. Ultimately this will push up end-user prices.

Tony Butler, Ingram Micro managing director, says freight is his biggest business expense.

"It's what I'm most worried about at the moment. There are cheaper options but in this industry you don't want things taking weeks to get there," he says.

Butler is looking at alternatives to give resellers more delivery options, including a slow-boat service.

"Until now Ingram has been a high-speed courier service because that's what customers want. But in the next couple of years a cheaper but slower option may be necessary, especially when it comes down to user pays."

While Butler acknowledges rail is an option, he points out that the IT industry relies on supply chain efficiency with speed a key factor - and cost.

"The costs are just going to keep going up. If the day comes when the dollar drops to 50 cents and oil is US$100 a barrel then we'll have to look at sea freight and consolidated rail freight."

Rival distributor Express Data is facing similar problems, though mainly with freight to the South Island.

Sales manager Paul Plester says it costs twice as much to send products to the South Island as it does to Wellington.

"There has been an impact on overall freight so we try to use sea freight for bigger, less urgent orders but I expect prices will keep going up," he says.

Plester says his company has a band of tolerance to weather some increases but is monitoring the situation closely.

"Over 50% of our business is in software licensing and if we're smart about our consolidation then it won't have a huge impact."

Paul Dixon, Westan director, agrees with the other distributors.

"I've noticed a continual increase in freight costs and am having to look at sea freight rather than air - I guess that's what most companies will have to do," he says.

Dixon says the most disappointing aspect is that costs will be higher for end-users, but he remains optimistic the situation will bounce back.

"Most companies have been able to wear the increase so far but we're very conscious of it in terms of pricing."

Dean Bracewell, managing director of Freightways, says while it's his company's strategy to keep prices low, in some cases it is left with no choice. "Fuel is a primary cost and when that increases we are forced to pass that on - there is no alternative," he says.

Tony Friedlander, chief executive of the Road Transport Forum, says the speed at which costs are passed on will vary between businesses.

"It depends on what contracts are in place; some may be adding on surcharges while others are able to adjust their rates," he says.

Friedlander says the overall assumption within the freight industry is that delivery costs will rise.

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