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Oil prices hit transport costs

Oil prices hit transport costs

Vendors may have to continue to absorb any increases

IT vendors and distributors say they will absorb surging transportation costs as a result of record oil prices.

Oil has smashed through all records in recent months, hitting $US130.81 a barrel on the New York Mercantile Exchange last week. CommSec equities economist, Savanth Sebastian, claimed that with high oil prices and poor economic sentiment prevailing in the short term, vendors will have to continue to absorb any increases.

"Retailers and firms could [once] pass on the costs to consumers and clients, but with tighter budgets, rising interest rates and a slowing economy you'll have to see a lot of firms start to absorb the costs themselves so consumers continue to flow through the doors," Sebastian said.

Hitachi Data Systems senior marketing manager A/NZ, Tim Smith, expected freight costs to continue to rise.

"I think it will naturally affect every industry that has to ship hardware to customers," Smith said. "In the past 12 months we have seen a 15 per cent increase in our freight costs into Australia and New Zealand and we expect that to continue to rise as the price of oil increases."

Representatives at Fujitsu Australia, Samsung and Acer said they were absorbing the increased transportation and production costs passed on to them while HP and NEC claimed any impact would be minimal to major players. ABN Amro Morgans research analyst, Mark Williams, said vendors will face further freight cost increases as transportation companies have traditionally passed on the burden.

"In the current climate I don't know how successful they are at passing them [costs] on," Williams said. "They are probably trying to do it as much as they can and as much as the market will bear."

While some vendors expected to be hit with higher transportation costs in the coming months they generally downplayed the impact on the bottom line.

"I wouldn't think any mature organisation in the IT industry would use fuel pricing to rack up the prices," Acer director of product management, Bert Noah, said.

The fuel price rise also raises questions about whether the cost of distribution will be hit. Ingram Micro director of products, Matt Sanderson, said it had witnessed an increase in local freight costs but was not passing these on to resellers at this stage.

Back in 2006, Ingram's decision to introduce a 6.5 per cent fuel surcharge on all reseller bills to cover transport costs was met with criticism. Since then, fuel costs are included in overall freight charges.

"We are bearing the cost and have not increased [freight] prices since July last year," Sanderson said.

Ingram also hadn't seen any increase in vendor product pricing despite the potentially higher price of international transport, Sanderson said. He admitted the situation could change if fuel keeps going up.

"It will get to the point where everyone will have to do something."


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