No barrel of laughs at the fuel pumps

Jul 9 2008 by Alan Ferguson for The Journal

RECENT months have seen extreme volatility in the price of fuel and with oil hitting $142 per barrel on Friday we are likely to see further increases this week.

Derv is the lifeblood of the freight industry and has risen much more than petrol. We have seen a peak price of some 130p per litre, including VAT, which is approximately where the market is now, but to understand the impact you have to look back 12 months to compare the price then, which was only 88ppl.

This increase of 48% has been most dramatic since December.

When you consider that fuel now accounts for more than 40% of the operating costs of a typical road haulage company it is no wonder that the industry is now under severe pressure.

Many operators struggle to fund this increase in the current credit climate as the fuel has to be paid for long before they receive payment for the transport of the goods.

Bearing all these factors in mind it is obvious that the increases have to be passed on to the customer, which effectively means an increase in the cost of transport of 20% in the last 12 months.

The customers have been understanding of the necessity of these increases, but will lose patience if the rate of increase continues, despite the cause being completely out of our control.

Some commentators have said that the cause of the increase is due to speculators pumping the price up beyond that required to satisfy the current supply and demand balance, while others blame the consumption of China, India and Russia. To some extent the cause is irrelevant as we have to deal with the effect on the market.

Oil is the lifeblood of the economy and the continual rise in the cost has to filter down to general inflation, which then causes the Bank of England to raise interest rates to try and keep control.

The combination of these two factors is beginning to severely affect the general economy. The Government has the opportunity to be proactive in doing something about these problems by both abandoning the tax accelerator and introducing an essential fuel user rebate for those sectors that are necessary to the running of the country.

The FTA has just issued some free posters to highlight the fact that the UK industry is paying twice the tax of its European competitors at 50ppl instead of 25ppl, a fact no doubt stressed on the July 2, when the industry lobbied parliament directly.

All, however, is not doom and gloom, as anyone who supplies the oil industry will tell you and also no doubt we will all re-double our efforts to use less fuel by whatever means possible.

As to where the fuel price might go from here, the person who knows that will undoubtedly become a billionaire.

Alan Ferguson is chairman of the North East Chamber of Commerce