THE DEFINITIVE TRUCKING SITE

February 2009

Comment

The ongoing downward spiral of the crude oil price has been a lifesaver for many transporters and fleetowners who struggled to keep going during the July 2008 period when the fuel price was nearly R12 a litre. As welcome as the collapse of the oil price is, we should not be less vigilant or allow complacency to set in. 

Firstly, the low crude oil price per barrel is not going to stay at current levels – nor should it if the price is unrealistically low. The oil price needs to be in the region of US$65 to $70 to justify the cost of drilling and ongoing exploration as well as providing crude producers a reasonable profit on their investments. The much improved diesel price at its current levels holds the potential for truck operators to take their eye off the ball. Fuel remains the number one operating cost for the majority of trucking tasks and the incidence of theft also remains a significant problem. Transporters are under pressure from shippers to lower rates, often without taking note of the rise in total operating costs during the past 12 months. Yes, the ubiquitous CPK factor has come down but not as dramatically as we may have expected after the massive drop in the fuel price at beginning of January this year. Consider the following factors based on the truck operating bench marks published quarterly in FleetWatch.

Comparing January 2008 to January 2009 the Gauteng fuel price came down by 10%. The price spiked last year at R11.43 a litre in July 2008 or some 58% higher than the price in January 2008. Reviewing the year-on-year factors, the CPK increased by 2,3% to 6,8% when comparing a 6,5-ton insulated volume van covering 60 000kmpa and a sevenaxle flat-deck interlink covering 200000 kmpa. The standing costs per day for the same vehicles increased by 15,65% and 14,8% respectively January to January.  

Also, the constant focus on the fuel price throughout last year tended to lose touch with standing costs. Over the year vehicle, trailer and body prices all increased in line with the general up tick in steel, timber, resins and rubber. Even although interest rates came down late in the year, it was not enough to compensate for the much weaker Rand, especially against the strong Euro that at times during the period we are reviewing reached parity with sterling. Before basing decisions on a straight comparison of fuel as a percentage of operating costs or variable costs, bear in mind that tyre prices and the cost of replacement parts, labour and accident damage all increased along with driver and crew wages. In total, these increases tend to reduce the percentage of costs represented by fuel on its own. Consequently, the status quo suggests that fuel as a percentage of operating costs in the case of seven-axle flat deck interlinks is now at 38% – just 5% lower than a year ago (43% in January 2008). However, we are talking about 38% of a higher total operating cost when compared with January 2008. This is why transporters and others responsible for freight rates are unable to accept unrealistic adjustments to rates. 

It would be naïve to speculate on how the fuel price will fare during 2009. The price per barrel at the time of writing was hovering around US$43; in the US it was around US$30 to $33. Some of the world’s largest producers such as Iran, Iraq and Venezuela are already in budget deficit. Having become accustomed to oil revenues contributing to a large percentage of their respective foreign earnings, they too are facing rising unemployment and labour unrest. The intensity of the worldwide meltdown provides little reason to expect increased demand for crude oil in the near future. Members of Opec have reduced daily oil production by 4,4 million barrels a day over the past year with little impact on the price. Should Opec decide it would assist its cause, they may well revisit the question of further production cuts. A major, nasty geo-political event seems the only likely situation that could provide  speculators with enough scare theories in an attempt to drive the price up. Most sensible analysts and commentators seem confident the price will remain within a reasonable range for most of this year. 

This issue of FuelWatch reports on current trends and developments in biofuels and the growing focus on the need to determine specifications for cleaner future fuels that contribute to improving air quality and allow the introduction of Euro 4 and Euro 5 engine technology. Recent FleetWatch initiatives continue to identify the neglect of trailer maintenance, an issue that has been confirmed by the KwaZulu Road Traffic Inspectorate renowned for its consistent enforcement of road traffic laws. This issue looks at the fuel saving opportunities all operators can enjoy when trailers are properly selected and regularly maintained. 

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