When freight costs rise sharply, someone has to absorb the difference. In theory, it flows downstream to the end consumer. In practice, it's rarely that simple — and for food manufacturers, the current situation is particularly uncomfortable.
Right now, the cost pressure is coming from multiple directions at once.
From above: your freight operators are passing costs on.
Fuel surcharges are not new — most freight contracts include a fuel surcharge clause that adjusts rates when diesel moves outside a set band. What's different now is the pace and scale of movement. When diesel rises 28 cents in a single week, surcharge adjustments that were designed for gradual fluctuations start to feel like something else entirely.
For cold chain operators, the problem is compounded. A refrigerated truck runs on diesel. The warehouse storing your product runs on electricity. Both input costs are elevated simultaneously. The Refrigerated Warehouse and Transport Association of Australia (RWTA) notes that energy costs are among the most significant operating pressures facing cold chain providers — and those costs are now being passed to clients through rate reviews and surcharge notices.
Freight surcharges in standard contracts are often non-negotiable in the short term. If your agreement includes a fuel escalation clause, the operator is entitled to apply it. Reviewing the specific language in your contracts — what triggers a surcharge, how it's calculated, and whether there's a cap — is now a critical task, not an administrative one.
From below: retailers and consumers have limits.
The assumption that cost increases can simply be passed through to the shelf price is being tested. Australian food and non-alcoholic beverage inflation sat at 3.1% in January 2026, with Westpac analysts forecasting it could accelerate to 4–5% by mid-2026 as fuel surcharges work through the supply chain. Consumers are already feeling cost-of-living pressure. Retailers — themselves under margin pressure — are not automatically accommodating supplier price increase requests.
The RBA's own research confirms that shipping cost shocks do pass through to consumer prices, but the transmission is uneven and slow. The manufacturer often absorbs a significant share in the interim.
The result: margin compression at exactly the wrong time.
As Trace Consultants noted in their March 2026 analysis of the fuel shock's impact on FMCG producers: inbound raw materials freight is rising, outbound distribution costs are rising, and production energy costs are rising — all at the same time. The squeeze is coming from every direction.
For a food manufacturer operating on, say, a 12–18% gross margin, an unplanned freight cost increase of even 3–5% of revenue can meaningfully shift the picture. When you add the cost of refrigeration, packaging inputs with embedded freight costs, and potential delays to inbound ingredients, the compounding effect becomes significant.
The honest question to ask yourself.
How much of this can your business absorb before you need to have a commercial conversation with your retail or distribution partners? And do you have the cost visibility to know where your breaking point actually is?
This isn't about panic. It's about being deliberate rather than reactive. Businesses that understand their numbers clearly — right down to the freight cost embedded in each product line — are in a far better position to have those conversations credibly and early.
In Blog 4, we cover the practical levers you can pull. But visibility comes first.
This is the second article in a four-part series on managing freight cost pressures in Australian food manufacturing.
References: William Buck (williambuck.com) | Trace Consultants (traceconsultants.com.au) | RBA Bulletin, July 2025: How Do Changes in Global Shipping Costs Affect Australian Inflation? | RWTA (rwta.com.au) | Westpac economic forecasts