Trucking operators 'could fail' as fuel jumps 72% and customers refuse to pay more

Sunday, 10 July 2022

Retail NZ’s Aimee Hines and Ia Ara Aotearoa Transporting NZ’s Nick Leggett said retailers were under enormous pressure from more people shopping online. (Video first published 4 March 2022)

There are fears some trucking companies could fail as surging fuel prices put pressure on their bottom line and their largest customers refuse to pay higher prices, Transporting New Zealand says.

Chief Executive Nick Leggett said those most at risk were the nearly one in five truck operators reporting that customers like supermarkets, mega stores and large industry operations were simply refusing to pay higher prices, or threatening to switch companies if they weren’t given a lower rate.

Leggett said the price to transport freight 100,000 kilometres had increased from $69,000 a year ago in fuel to $119,000 today – an increase of roughly 72%.

“We are talking about substantial fuel increases, and if a trucking operator can pass on only some – on indeed cannot pass on any of their costs – there’s a viability concern about whether that business can stay operating over the long-term.”

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Leggett said the Government’s decision to allow a 36% discount to road user charges (RUCs) had helped, but he called for the discount to be extended past September 21, when it is due to end.

He said the real issue lay in large customers’ ability to simply refuse to share the burden of fuel price increases.

“I think it’s important we consider competitiveness and market power, and ensuring there aren’t large entities operating in the market at the moment who can really force costs to be held in one part of the supply chain – and that’s the problem we have here,” Leggett said.

Deborah O’Brien owns Debz Transport in Lower Hutt in Wellington and says the situation is getting dire, with some operators low-balling prices to secure work, and then increasing costs once they had the customer.

“I’ve seen it happen, and I’ve heard of other freight companies having it,” she said. “It’s because everyone is out there to get the work. Everyone is out there to survive.”

She said most truck operators were trying to support each other, and making sure all trucks were full to keep the number of trips to transport freight to a minimum.

Debz Transport says fuel cost fluctuations were starting to influence how the company planned other expenses, including fleet expansion.

O’Brien said some customers expected savings from the discount on RUCs to be passed on directly to them, and forgot the discount had been enacted to soften the impact from fuel cost increases.

She said some large customers were trying to create bidding wars between truck operators to drive down prices.

O’Brien said supermarkets didn’t mind passing cost increases onto their everyday customers, but didn’t want to pay increased freight costs.

She took over the company from her father, and said hers is a medium-size operation, running 10 trucks of various sizes, and employing 14 staff.

Debz Transport is located in Wingate, just north of Lower Hutt in the Wellington Region.

Fuel was the company’s biggest expense and had to be paid upfront, she said, but customers often paid their invoices a month or even two months later, which created cash flow issues.

O’Brien was not at the point of making cuts but was monitoring the accounts daily, and said current conditions may force her to delay buying any additional vehicles.

Ia Ara Aotearoa Transporting New Zealand is a conglomeration of the Road Transport Forum and the Road Transport Association, and represents primarily the operators of larger trucks.

Price of diesel increases have fuel costs per 100,000km 72% on a year ago, according to Transporting New Zealand.

Larger trucks almost always run on diesel.

Transporting New Zealand found of the 400 transport companies surveyed across the sector, almost nine in 10 said recent cost increases had major negative impacts on their business.

“We are very concerned about some businesses being able to survive,” Leggett said.

“We are raising the alarm given the fragility of our supply chain.”

Leggett said trucks carried 93% of freight in the country, so the pressure constituted a major supply chain vulnerability

“Simply put, if operators can't make their business viable, trucks don’t move, and if trucks don't move, shelves don’t get stocked,” he said.

Figures suggested a year ago, only 20% of providers had fuel making up more than a quarter of their business costs. Today, 64% said fuel made up more than a quarter of their costs.

“A total of 45% of operators said fuel is now in excess of 30% of their costs; a year ago that was just 8 per cent,” Leggett said.

He was also concerned that only half the operators interviewed in the survey felt their customers appreciated the need to increase rates.

“Fixed costs like fuel can’t be avoided. These costs need to be fairly shared by all parties in the supply chain,” Leggett said.

Other recent reports suggest driver shortages and poor road surfaces were creating issues in the industry.

Leggett said if the trucking industry was driven into the ground, it would impact productivity and the ability of the economy to recover from the pandemic.