Fuel Prices, Transport Industry News

Facing the fuel cost crisis

The Australian transport industry has found itself between a rock and a hard place. Unforeseeable events overseas have resulted in sky-high diesel costs while years of government inaction have left operators with no easy path to electric alternatives

The Australian transport industry has been feeling the pain of rising fuel costs for a long time. The COVID 19 pandemic, followed by the war in Ukraine have meant disruptions and difficulties in securing fuel from overseas as well as a general rise in the cost of diesel.

The transport industry benefits from a fuel tax credit system whereby the government subsidises the cost of diesel fuel for businesses operating heavy vehicles. 

At the same time there exists a fuel tax excise and a road user charge which are costs the government charges to road users.

Recently however, there has been pressure on the government to reduce this subsidy in order to claw back more revenue for the budget. 

Warren Clark, CEO of the National Road Transport Association (NatRoad) says these charges cannot continue to increase indefinitely.

“Fuel costs are at record levels; the industry cannot bear any more fuel costs so these charges should not be raised.

“Our research suggests that fuel prices will be even higher this year. The price of fuel being the number one concern to our industry means there will be even more cost pressure on businesses. 

“It’s a huge issue for industry,” Clark says. 

No one, it seems is happy with fuel at the moment. While transport businesses bemoan the relentless price increases, environmental advocates push Australia to reduce its carbon emissions, of which road transport contributes a significant amount. 

Melbourne-based think tank The Grattan Institute argued in its report on the fuel tax credit system that the government should not be subsidising road emissions. This leaves the road transport industry in a difficult position as alternate fuels and carbon zero vehicles are not yet a viable option in this country. 

Clark explains: “The argument for emissions is not relevant. When you look at the distances, we have to cover to deliver freight in Australia. The infrastructure to charge and refuel these vehicles is not there.

“All a reduction in the tax credit system would do is put more pressure on the cost of living and contribute to more inflation,” Clark says.

Such a dramatic increase in the cost of fuel that would result from a reduction in the tax credits would be incredibly damaging to the transport industry. Many smaller transport businesses operate on very small margins and so if they were not able to quickly pass on increased fuel costs, such a shock could see them go out of business.  

Customer pressure

CEO of the Victorian Transport Association (VTA), Peter Anderson, says operators are always acutely aware of fuel costs. 

“After wages, fuel is the biggest direct business cost faced by operators, and it’s also the most variable.

“Higher diesel costs need to be passed on in full through the supply chain, but pressures from customers and prime contractors make this difficult for many operators.

“The impact of the previous government’s six-month fuel-tax cut left many operators with pressure on cash flows,” Anderson says. 

Anderson adds that the VTA wants positive action from the government aimed at taking pressure off the road freight industry. 

He says in the lead up to the May federal budget, the VTA advocated for financial relief and greater concessions for operators.

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“Limiting increases to the road user charge and increasing fuel tax credits to offset higher diesel costs, are practical outcomes the government can do now to alleviate pressure on all road freight operators.

“Penalising the road freight industry by not recognising the impact of sudden increase in the cost of fuel will only lead huge increases in the cost of goods to all consumers,” Anderson says.

Ukraine impact

The larger issue around fuel costs is Australia’s dependence on diesel and petroleum purchased from overseas. Fuel sources like these are subject to changing international conditions, such as the war in Ukraine, but more importantly their supply is never fully guaranteed.

If Australia was able to transition to domestic fuel sources, such as renewable energies, then we would not have to fear such unstable prices for operators, nor being cut off from a supply all together. 

Warren Clark says Australia is being held to ransom on the price of fuel.

“Electric vehicles would reduce our dependence on foreign fuel, unfortunately that’s not yet viable here due to the large distances our freight needs to cover.

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“We need the government to look at the sovereignty of our fuel supply chain in this country,” Clark says.

Many industry bodies agree they would like to see more support from the government in general, both to incentivise alternative energy vehicles and support operators. 

Anderson says, of course, operators would move to zero emissions vehicles if it was a viable option, but that they shouldn’t be punished for being forced to stick with diesel until the conditions improve.

“The freight industry would be pleased to transition away from diesel if there was a viable energy source available.

“The freight industry should not be penalised due to the lack of transitional energy pathways. Fuel should not be used as an indirect tax on goods and services.

“The Freight industry continues to meet its obligations to meet the demands of every Australian. Recognition of the impact of the cost of diesel that faces every transport business by the Government is vital for the sustainability of the road freight industry,” Anderson says. 

It’s also important to note that anything hurting the freight industry will end up hurting consumers as well. The last thing governments should be doing in the middle of a cost-of-living crisis is adding more operating costs to transport businesses.

Any cost prices businesses end up passing on will result in higher prices for goods, such as supermarket items, and will contribute to higher inflation.

The end goal will always be to transition away from diesel and shore up a dependable, local fuel source. However, now is not the time to add more pain to operators already struggling to stay afloat. 

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