Are High Fuel Prices Good for the UK Transport Industry?

Two months ago I wrote that I was starting to think that high fuel prices may be a good thing for the same day courier industry. I’ve revisited my original post in the light of the recent drop in fuel prices, recent statistics about car use and the exit from the business of quite a few less profitable owner-drivers and courier companies and I still stand by my opinions. In fact I’d go as far as to say that I’m a bit disappointed that fuel prices are dropping again so soon.

The effect on the same day courier industry has been largely mirrored, or possibly even magnified, in the transport industry in general.

The RHA and the hauliers are still, of course, bleating about haulage companies going out of business because of high fuel prices. The reality is that the only haulage companies who are suffering because of high fuel prices are those who didn’t have the foresight to tie their customers into contracts with provision for automatic fuel surcharges, or who haven’t had the resolve (or the finances) to insist on higher rates from customers who aren’t tied in to contracts with such provisions.

Sure, there’s less work for haulage companies (and couriers) because of the economic downturn but it’s not fuel prices that are the real problem. Until the recent sharp increase in oil prices the price of road fuel had actually risen at a slower rate than inflation over a period of many years, allowing hauliers to keep their customer rates artificially low.

Relying on continuing low oil prices to keep haulage rates low was always bound to leave the industry at the mercy of the international oil markets. We’re now at the very beginning of a sustained increase in oil prices driven by the spiralling demands for fuel, plastics and fertilizer in China, India and the other developing economies.

Hauliers point at foreign truckers with cheap diesel as the root of all their problems, but the higher fuel prices are actually shifting the balance in the UK hauliers’ favour in that respect. As the price of oil increases, the disparity in the favour of hauliers buying fuel in countries with lower tax on fuel actually decreases and using foreign hauliers becomes less attractive.

It’s not customers shifting to using foreign hauliers that’s been the recent problem – it’s UK hauliers willing to run at unsustainable rates to ‘win’ work from their competitors. Eventually any transport company adopting this business model will fall by the wayside – fuel costs are fuel costs, there’s no amount of innovative thinking that makes it much cheaper for A.N. Other Haulage to shift 24 tonnes across the country than any other transport company. Urgency, short notice and catch-loads might make the difference, but for bog-standard trailer-loads from A to B, costs are costs are costs. Your costs are the same as his costs are the same as my costs. Joe Bloggs might be able to do it cheaper until he goes bust next month and Polski Truckering Co-operative might always be there as a low quality (I’m part Polish so I can say that) alternative but British industry (what there is left) relies on Fred in Despatch being able to speak to Bill in Traffic or Load Planning and get the job sorted.

The UK’s transport industry isn’t being killed by high fuel prices but individual transport companies are committing suicide by charging rates that don’t reflect their actual costs. That works both ways as well – I’ve been as surprised by some of the unrealistic inflated prices we’ve heard about recently as I have by some of unrealistically high prices.

Posted under Fuel Prices

Posted by Alec at 6:34 pm, August 12, 2008

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