How are fuel costs affecting landscapers?

Rising diesel costs are flowing through to concrete, aggregates and landscape materials, with suppliers adjusting fuel surcharges and leaving landscapers with another variable to account for when pricing work.

Landscapers may need to pay closer attention to the validity period of supplier pricing as fuel-related surcharges continue to change, with several major suppliers reviewing their rates weekly.

Firth increased its temporary fuel surcharge for Certified Concrete to $9.90/m³ nationwide from 5 October. The company is also applying surcharges of $5.30 per pallet for Firth Masonry deliveries.

Firth says the surcharge appears separately on invoices and can increase or decrease in response to movements in the national retail diesel price, with changes applied on Mondays.

Meanwhile, North Island Dricon deliveries have been hit with a $4.05 surcharge per pallet and $14.30 per pallet for South Island deliveries.

Winstone Aggregates is taking a percentage-based approach. Its temporary fuel surcharge increased to 7.3% of the invoice total from 29 September, with the company also linking future movements to the national retail diesel price.

Allied Concrete has operated a per-cubic-metre fuel surcharge since March. Its published calculator shows the surcharge rising from $6.89/m³ for the week beginning 14 September to $7.35/m³ on 21 September, $8.62/m³ on 28 September and $10.40/m³ from 5 October. Allied bases its calculations on MBIE's weekly diesel board price data.

The effects are also being felt by specialist landscape suppliers.

Canterbury Landscape Supplies (CLS) applies a Fuel Adjustment Factor (FAF) to production and freight charges, which it reviews weekly. Its production and delivery FAF increased from 4% on 31 August to 4.5% on 7 September, 5% on 14 September and 6.7% on 21 September.

The rate eased to 6% as of 28 September, with its contracting FAF for freight and contracting work at 11%.

What does it mean for landscapers?

The changing rates create an additional consideration when quoting projects, particularly where there is a significant gap between pricing a job and ordering materials, said Canterbury-based Canterra landscape architect and co-director Connor Sullivan.

“The prices of pretty much all materials have gone up, so unfortunately this is a cost that we must pass on the client,” said Sullivan.

“This is particularly difficult where work has been quoted months prior and the client accepts the job price – and then, all of a sudden, materials and fuel costs have jumped even higher.

“It can be a tough conversation to have with clients at times. Often price increases can lead to reduced scope of work, which isn’t good for the client or the contractor. We’re just lucky plants don't run off diesel, otherwise we’d definitely be in trouble!”

Wellington-based Scapegoats director Kylie Herrick said that rising costs can negatively impact the business in a number of ways.

“Those additional costs ultimately have to be accounted for when we price projects,” said Herrick. “While we can build supplier surcharges and higher operating costs into our estimates, there’s obviously a limit to how much the market will absorb.

“The frustrating part is that fuel increases don't just appear once in our cost structure. We feel them directly through our own vehicles, and indirectly through supplier and delivery surcharges. We then have to decide how much of that additional cost can realistically be passed on to our clients without making projects unaffordable.”

Rules for passing on fuel costs

There are rules around how fuel surcharges can be applied in client invoices.

The Commerce Commission says fuel surcharges can legitimately be used to recover unexpected increases in fuel costs but they must reflect the actual additional fuel costs being faced by the business. They cannot be used to recover unrelated expenses or increase margins. Customers must also be told about the surcharge before payment and it should be sufficiently clear for them to factor it into purchasing decisions.

The Commission makes similar points about Fuel Adjustment Factors, which move up and down alongside fuel prices rather than changing the underlying base price. Businesses using a FAF should clearly explain how it is calculated and ensure reductions in fuel costs are reflected when those costs fall.

For landscapers, the immediate implication is to check current supplier surcharges when preparing quotes – and check them again before materials are ordered.