Emergency Fuel Price Crisis Responses Ramp Up In Europe
Market Monday – Week 14 – A patchwork of different approaches appears on the market
Following up on our analysis two weeks ago regarding the vulnerability of European freight rates, the situation has continued to escalate from news headlines to a systemic impact within the transportation industry. The severe crisis in the Middle East and the effective throttling of the Strait of Hormuz have sent Brent crude surging well past the $105-per-barrel threshold today.
Europe’s reliance on oil imports and limited resources to mitigate the impact has pushed the weighted average diesel fuel price up to an astonishing EU average of €2.07 per liter last week, and this week’s threshold will likely be even higher. With fuel accounting for 25-30% of transport costs basis, commercial carriers and logistics providers faced extreme margin compression, forcing them to engage in immediate and aggressive upward rate correction negotiations with shippers. This is especially true in the contracted freight market, where normally fuel floaters change in a month or even in a quarter after the actual changes in fuel prices.
To prevent a deterioration of critical supply chains and consumer price inflation, European governments have continued drafting and implementing emergency mitigation measures over the past two weeks. However, constrained by national budget realities, the responses have been highly fractured, creating a patchwork of regulations across the European markets.
Staying away from the expensive tax subsidies, Germany and Austria chose a path of stricter regulations aimed at the mechanics of retail and wholesale fuel pricing instead of direct fiscal measures. The Austrian government implemented a severe tightening of its fuel price rules on March 16. Petrol stations are now legally restricted to increasing prices exclusively on Mondays, Wednesdays, and Fridays at exactly 12:00 noon. Germany followed the example on March 27, when the government successfully passed a Fuel Policy Package through the Bundesrat. Entering into force just ahead of the Easter holidays, the legislation structurally restricts petrol stations to a single daily price increase at noon and introduces complex anti-cartel measures aimed at increasing competition on local wholesale and retail fuel markets.
Unlike regulatory solutions above, Poland has deployed heavy fiscal intervention. While a massive fuel VAT reduction (23% to 8%) and retail price caps go live tomorrow, March 31, this headline relief is largely an illusion for commercial carriers. The only operational savings for them come from the excise duty cuts that took effect today, March 30, yielding a slight net reduction of just 28 groszy (~6.5 ct.) per liter for hauliers. To fund these measures, Poland is concurrently implementing a windfall tax on energy corporations.
Across the rest of the continent, the policy patchwork introduced over the last two weeks presents operational complexities for cross-border logistics:
Similarly to Poland, Spain announced an expansive crisis package on March 24, reducing its fuel VAT from 21% to 10% (effective March 22) alongside an extraordinary and temporary cashback subsidy of 20 cents per liter for diesel used in commercial transport activities until 30th of June.
Greece’s government decided to directly subsidize diesel for transport and agricultural sectors at the distribution level by €0.16 per liter before VAT in April and May.
Taking a middle-ground approach, Sweden announced a 4.7-billion-SEK relief package on March 23 to reduce petrol and diesel taxes to the EU minimum, allowing for 30-40 eurocent discounts at the pump. However, unlike the immediate interventions seen in Southern and Eastern Europe, this relief will not enter into force until May 1.
France, UK, Italy and Bulgaria have rejected untargeted consumer subsidies and direct fiscal measures. France announced measures on March 23 focused on easing payroll levies and extending tax deadlines specifically for the transport sector. The UK (March 24) prioritized aggressive anti-profiteering frameworks. Italy enacted emergency decrees on March 19, deliberately carving out €100 million in tax credit mechanisms exclusively for transport and logistics enterprises.
Meanwhile, Romania adopted a severe emergency ordinance on March 26 (in force from April 1) that legally caps commercial markups and heavily restricts the export of diesel with massive financial penalties, without any direct fiscal measures.
So, while these rapid national interventions are designed to keep the economy and services providers moving, their variance creates severe secondary friction for the road freight market, when at the pump prices in transit countries might be significantly lower than the wholesale prices at the home base country, sparkling “fuel tourism” and introducing potential for sub-optimal routing distance choices, indirectly harming network efficiency, while the need to apply for targeted government rebate schemes increases the administrative load and introduces an additional degree of risk from processing errors. Overall, the absence of a uniform approach in these measures decreases market transparency and complicates the fair spread of fuel price risks between shippers and carriers.
Oleksandr Kulish
Senior Consultant