Are spiralling diesel costs linked to insolvency spike?

Are spiralling diesel costs linked to insolvency spike?

Research Analyst for National and Regional Policy | Freight Transport Association

Every year the Freight Transport Association produces many pages of advice and information, all designed to help our members manage their businesses as successfully as possible. As we move into spring, two trends have been standing out; the continued increase in fuel prices and a dramatic rise in freight companies going bust.
 
At the start of 2018, the price of a barrel of crude oil had gone up by around 17 per cent compared to the same time the previous year. This was despite the continuing oversupply and weaker demand, reported by the International Energy Agency. The upward trend of crude prices along with the sharp fall in the value of the pound after the Brexit vote, means the price pressure on UK bulk and forecourt prices continues to be upwards. Bulk and pump diesel prices are now several pence a litre higher than they were at this time last year and all the experts say the increases look set to continue.
 
With fuel forming such a substantial proportion of the price of vehicle operation, any rise naturally can have a significant impact on overall operating costs. According to FTA’s own Managers’ Guide to Distribution Costs, the average total HGV vehicle operating cost rose 3.2 per cent in the 12 months to October 2017. The primary factor in this increase was fuel, which means the cost of diesel now represents 32.5 per cent of total vehicle operating costs for a 44-tonne artic compared to 31.3 per cent a year ago.  Even disregarding the cost of fuel, the total operating cost of an HGV is still rising, increasing by 2.0 per cent in the 12 months to October 2017.
 
Whilst diesel prices have been rising, another worrying trend has emerged in the statistics from the government’s official Insolvency Service. It released revised figures which showed the number of road freight operators going bust in Q3 2017 rose to its highest level since comparable records began in 2007. The number of road freight operators declaring insolvency was up 57.6 per cent in Q3 2017 compared to Q2 2017 and was 210.0 per cent higher than a year ago. 
 
The long-term trend since the end of 2011 had generally been downwards but the number of road freight operators declaring insolvency in Q3 2017 was 9.4 per cent higher than that seen at the peak of the economic downturn.  
 
So, is this increase in insolvencies a blip or a worrying change in direction for the road freight industry? And what could be to blame for the sudden rise in companies folding? The truth is that without further research and a crystal ball it is very hard to know. But FTA is watching the figures very closely. We’ll continue to provide analysis on vehicle operating costs and the wider economic environment to assist our members in making better business decisions. 
 
A major benefit for FTA members is the expert advice we offer on adapting vehicles and operations to make them more fuel efficient.  Advice available includes well-proven solutions for cutting fuel use for individual vehicles and reducing the price of fuel with the use of fuel cards and strategic purchasing. We can advise on options for re-planning routes and loading techniques to maximise the benefit from every litre and our VisionFTA software provides detailed analysis of usage levels and trends to help spread best practice and improve driver behaviour.
 
Members of FTA’s Logistics Carbon Reduction Scheme are proof that practical measures can lead to a dramatic decrease in fuel costs. Their fuel bills are typically 13 per cent lower than the industry average. The scheme is free to join and is open to any company with at least one commercial vehicle. It now has more than 125 members with more than 87,000 vehicles.  
 
Whatever the immediate future holds for the road freight industry, FTA maintains the position that fuel prices are too high. Ministers continue to underappreciate the impact the cost of fuel has on both on the logistics sector and the wider UK economy. Independent research consistently shows that fuel duty is an often unseen and unnecessary brake on economic growth, adding cost to every aspect of British life. The UK currently levies the highest fuel duty in the European Union and this duty needs to fall by around 19p per litre to achieve parity with the average duty rate in the rest of the EU.   
 
While such a cut is unthinkable, FTA believes a drop of 10p per litre would result in the creation of a quarter of a million jobs in just one year, generating more than £1 billion annually to be spent on goods and services. A smaller cut of 3p per litre would still be a significant boost to the economy and research shows, be close to cost neutral for the Government as economic activity and other tax receipts would rise to replace the lost revenue.  
 
FTA continues to campaign hard for a cut in fuel duty, sharing the concerns of road freight operators with politicians and policy makers.  We are part of FairFuelUK, the nationally recognised, award-winning campaign, fighting for lower fuel prices. We hold regular meetings with ministers and politicians ensuring the issues of the industry are raised at every opportunity. We organise visits for MPs and parliamentary candidates to sites, so they can learn about the practicalities of running a complex logistics operation. And FTA provides a regular submission to the Treasury in advance of the Budget to set the industry’s position on the country’s finances.
 
Whatever the future of fuel prices in 2018, they will continue to be a key issue for all logistics operators big and small and FTA will be here to support them with all the latest news, analysis and advice.
 
 For more information, visit: www.fta.co.uk