THE DEFINITIVE TRUCKING SITE

April 2008

The Plight of Transporters

At the time of writing, the international media were reporting that 33 countries anticipate some level of social upheaval over the increase in food prices. Many reports blame the high fuel price for a great deal of these huge price hikes. In the US independent owner-drivers are threatening to strike as their profit margins have shrunk to a point where they can no longer afford to haul goods. Their association, the OOIDA say they do not support strikes. However, they do not tell their members what to do. 

The American Trucking Association say they will spend $135 billion (that is more than one trillion Rand!) this year on fuel. With the US economy in a downward phase there is less freight than truckers. The OOIDA has asked the US congress to pass a law allowing truckers to pass on 100% of the price and support the law with transparency for such transactions. It is unlikely local transporters would contemplate striking, since the probability of succeeding would be remote. And then, nobody wants to see a trucker’s strike because there would be no winners and the strikers would be the biggest losers. 

What are the chances that the national print and electronic media could come out in support of all truckers – whether transporters or own transport fleet owners? Why is it that economists, financial analysts and the media tend to talk only about the petrol price and never the diesel price? When will the vital economic role road freight transport plays be properly recognised? 

Are we as a nation sufficiently aware that the current fuel price represents almost 50% of truckers’ owning and operating costs? Even worse, is that fuel represents nearly 70% of the running costs. How then can a truck owner or operator find the wherewithall to fill there vehicle fuel tanks with enough fuel to maintain the level of service they have agreed to provide? 

How many will go belly-up in the process unless existing dry freight rates are rapidly brought into line? But, how do you rate the chance of this happening, especially given the over-capacity vying for dry freight traffic? According to two oil majors at the time of writing more than 50 trucking businesses (not all of them small) had decided to call it a day. Some will be bought out by larger, financially stronger players. 

The Road Freight Association (RFA) is on record of pleading the case for transporters, especially small or medium fleet owners. Many, say the Association, will be hard-pressed to survive. Examples were quoted pointing out that some small operators are desperately trying to cope wit fuel bills that have risen from R6 000 a month at the beginning of the year to nearly R20 000 a month in just three months when you add maintenance and tyre costs. Others say they are forced to reduce their fleet size and hope they can earn enough to survive. There are also predictions that some will replace their old gas guzzlers for new, less thirsty vehicles. Hopefully they will find buyers for them. 

Given the nature of the business and the chequered history of a few irresponsible transporters, fuel suppliers require proper guarantees or cash deposits. This is so whether the user has one or more home bases or fills on-road according to an agreed payment period, such as payment in 30 days, if found to be creditworthy.

Obviously, the contractual arrangement is a matter to be agreed between the fuel supplier and each user of its products. Discussion with some oil majors confirms they will seek additional security from customers in order to maintain deliveries at the same level. This they acknowledge it will be difficult for many users, especially for smaller fleet owners and newcomers. 

Fleets operating home bases are also required to revisit their contractual arrangements and where deemed necessary make the necessary arrangements to maintain supplies. FuelWatch is aware that two major banks are in the process of announcing more technological improvements to their respective fleet cards. Unfortunately the detail was not available for release in time for this issue but will, all other things being equal, be included in the next issue of FuelWatch. 

What then can be done to assist?

So what then can be done to assist transporters and fleet owners delivering own goods to wholesalers/retailers etc? The most practical and achievable proposal is for shippers and consignors to recognise the need to adjust the rate they are paying (in respect of the fuel element) monthly rather than quarterly. This is essential in the case of all transporters hauling goods long distances. Many shippers have gone this route already but should now be standard rather than exceptional practice. 

It is appreciated that it is not always easy to reconcile accounts. However, even 30 day payments are historical in terms of a rising fuel price. However, some commitment to pay as soon as possible should also be pursued. This is especially so, when considering a 7-axle interlink covering 200 000 km a year, consuming an average of 52 litre/100 kilometres must be funded with R14 630 for a round trip between Johannesburg and Cape Town. Assume a transporter runs 10 such vehicles just once a week for a shipper, the outlay is R146 000 a week, or R 1, 1 million by time they are paid for half this amount, if they are indeed paid 30 days after the event. 

If shippers, consignors or whoever makes use of road transport services should fail to co-operate and find ways to assist the trucking industry weather this tough period, there is a real risk that the current over capacity could rapidly disappear and result in rates firming a lot more than adjusting for only the changing fuel price. It will pay dividends for transporter and shipper alike to be fully conversant with just how much the fuel price represents in freight transport rates and to recognise this as a genuine operating expense that must be managed. 

FuelWatch and the truck operating cost benchmarks published quarterly in FleetWatch will continue to provide a useful guide to address this important aspect of improving awareness of the impact of fuel costs. It is a time to work together in the interests of preserving and protecting the vital trucking industry that has such a crucial role to play in the ongoing prosperity and living standards of the nation.