For line-haul operators running freight between capital cities, fuel accounts for between 30 and 40 percent of their total operating cost. The fuel crisis has meant that close to half of what a business pays a long-haul transport provider has effectively doubled. The federal government’s decision to halve the fuel excise and remove the road user charge provides some relief, but when those measures are factored in, the net cost of diesel is still extremely steep for operators.
Many businesses already had a surcharge arrangement in place before mid-February, set against a baseline from some earlier point. Working out the correct position now – accounting for the excise changes, the road user charge removal, and the specific freight task – is complicated. Fuel’s contribution to freight cost is not uniform: it makes up around 10 to 15 percent of the cost for metropolitan deliveries, 20 to 25 percent for intrastate work, and 30 to 40 percent for long-haul interstate.
Read Also: How to support your transport partners under pressure
Transport companies can fail from cash flow problems driven by extended payment terms paid late, or the inability to recover fuel cost increases fast enough. Businesses that are withholding fair fuel surcharges – whether through inertia, confusion about the correct calculation, or deliberate pressure – are contributing to conditions that can push transport operators out of the market. The Fair Work Commission’s order which came into effect this month makes cost recovery an enforceable legal requirement.
For larger businesses with national distribution networks, the fuel crisis makes a strong case for holding inventory closer to the point of consumption in each state, rather than running long-haul distribution from a single central warehouse. For smaller businesses, the economics are unlikely to stack up. But businesses of all sizes should be aiming to understand their fuel surcharge position, engage transport partners with transparency, and pay what is owed.
The conversations around electric vehicles inside Australian transport companies are happening, but the current industry conditions don’t support industry wide, mass adoption. Many transport operators lack the grid capacity at their depots to support meaningful fleet electrification as just one of many constraints. Australia’s right-hand drive market means the country sits well down the queue for electric truck R&D investment, with manufacturers prioritising the larger, more advanced markets of Europe and North America. At a global level, the rare earth minerals and battery packs being produced are prioritised to passenger vehicles, not freight, so meaningful change, while having commenced, is still a while away.
Peter is Managing Director and Founder of Prological Australia, Prological NZ and Cological. In January 2018, he also founded Prological Consulting UK.
While Prological has been successfully operating for close to 10 years, Peter has been an innovative supply chain consultant for over two decades. Before establishing Prological, he was also a founding partner of Logiworx consulting practice from 2002 to 2010.
