Woolworths has increased the fuel levy charged through its logistics network to food and grocery suppliers to almost triple its pre-Iran war level as diesel costs continue to climb.
The fuel levy surcharges have increased for metro and regional areas, affecting some of the country's largest food and grocery manufacturers.
This includes Primary Connect, Woolworths' logistics arm, which transports goods from suppliers to distribution centres and stores across the country.
The business manages freight for more than 1,000 grocery producers, including brands such as Sanitarium, PepsiCo, Ingham's and Arnott's.
The fuel levy for metro areas recently rose from 17.47 per cent to 19.88 per cent.
In regional Australia, the levy increased from 44.20 per cent to 50.30 per cent.
University of Sydney supply chain management professor Rico Merkert said the increases were not unusual when diesel prices rose sharply.
"Fuel levies are commonly used in freight markets to manage fuel-price volatility," Professor Merkert said.
"Many transport operators use surcharges that can be adjusted periodically rather than renegotiating contracts every time fuel costs move.
"If diesel costs rise sharply, it is economically reasonable for freight providers and retailers to increase fuel surcharges to recover those additional operating costs."
Prior to the Iran war, the fuel levy Woolworths charged in metro areas was 7.28 per cent.
Within weeks of the war, it had risen to 12.47 per cent.
The regional fuel levy has jumped by more than 172 per cent since March, when it was 18.44 per cent.
Consumers likely to feel impact
Experts believe the increase in freight costs are likely to be shared across the supply chain.
"My prediction is that consumers and suppliers will get the worst end of the deal of the fuel surcharge increase," said Medo Pournader, senior lecturer of supply chain management at the University of Melbourne.
University of Sydney professor Ben Fahimnia, who is also a specialist on the issue, said continually pushing rising logistics costs back onto suppliers is not a sustainable solution.
"They have absorbed some of the costs initially and have tried to find savings elsewhere, but there is a limit to what businesses can absorb," Professor Fahimnia said.
"Someone ultimately has to pay, and, at these fuel levy rates, that will be Australian consumers at the check-out."
While Professor Merkert agrees, he believes the effect is unlikely to be one-for-one.
"Higher fuel levies can eventually contribute to higher retail prices and hence inflation, but freight is only one element of the final shelf price, so consumers would not necessarily see a direct or proportional increase at the check-out," he said.
Rising fuel prices have played a significant part in Australia's inflation rate, which recently jumped to 4 per cent in August.
Transport was the second-largest contributor to the annual inflation figure as a result of higher automotive fuel prices.
On a monthly basis, automotive fuel prices rose 14.8 per cent in August, compared with a rise of 7.5 per cent in July.
In a press conference after last week's monetary policy decision, Reserve Bank governor Michele Bullock warned businesses were preparing to pass on higher fuel costs if necessary.
"The longer it [the war] lasts, if businesses were thinking, "Oh, look, it'll come off, I won't pass on costs," the longer it goes, the more likely it is that businesses will just try to pass through the cost increases," Ms Bullock said.