Don’t expect rate cuts as diesel price drops

With an over 40% drop in the price of 0.05 sulphur content diesel (the fuel used by most commercial road transporters) since its record high in July last year, the wholesale price has now again hit 2007 levels. But, although truckers have breathed a sigh of relief at the easing of the price, they are not rushing off to the bank with lots of extra profits, nor are clients seeing any big drops in the quoted prices for transport contracts. In a consultation with two of Durban’s big short-haul container carriers – DTB Cartage and Freightliner Transport – FTW was told that rapid increases in other costs were somewhat tarnishing the glister of the drop in fuel cost. Looking at his fuel supplier’s wholesale price, Paul Rayner, DTB MD, said that the latest (January 7) cost was quoted at 640.55-cents per litre – over 43% down on the July 2, 2008 price of 1 129.50-c/l. “It’s obviously a help to us,” he said. “But, while we have now dropped our fuel surcharge, we’ve had to refrain from cutting our rates.” The reason behind that is that, while diesel has got cheaper, it has been countered by rising costs for the likes of tyres, parts, wages, salaries, and rentals. “All of these,” Rayner added, “have been running double-digit increases in cost, and if we’ve been able to get a 7% rates increase from clients we’ve been lucky.” There are other results of the global crash which are having a not-so-indirect impact on road hauliers, according to Freightliner MD, Kevin Martin, also vice-chairman of the Durban harbour carriers’ division of the SA Association of Freight Forwarders (Saaff). “For example,” he said, “depots and terminals have been cutting back on staff and opening hours, and this costs us possible delays or extra time to complete these transport legs. “Everybody’s looking at saving a buck and cutting corners. This is also adding to our container unpacking times – and transporters are standing around for a lot longer. “That’s all extra time, and time is money.” Both these container truckers also complained loudly about rapidly decreasing business volumes. Talking to an executive for a major long-haul trucking company, FTW discovered that the same problems were facing that sector of the industry. “I’d agree with their (Rayner and Martin’s) sentiments,” he said. “Sure, the drop in the fuel price will make a difference, but not as much as some people would like to think.” Looking at the element of cost, the long-haul trucker suggested that the fuel contribution to the overall operating cost had certainly gone down. “But,’ he said, “spares, wages and the like have not been doing the same.” There is also the business of return loads, which are a vital element for long-distance carriers, where an empty return leg is a disaster for a company’s truck usage statistics – and has an ultimate impact on its bottom line. “In the domestic transport market,” said our source, “return loads are no longer necessarily available. And return loads out of Zimbabwe and Zambia are now virtually non-existent. All of which is having an adverse impact on trucking companies’ cost structures. Our long-haul voice also had words to say about the big drop in the international crude oil price. There’s no guarantee that it’s going to stay there for much longer, he added. When FTW interviewed him on January 7, he noted that the price of Brent crude had been US$34.30 per barrel on January 2. “But,” he said, “the current price quoted by the treasury is US$ 49.30/b. “That’s US$15 per barrel more in literally five-days.” The northern hemisphere winter is yet to have its usual dramatic impact on oil price demand. But the winter still has four months to go. There is also the problem of the Middle East tensions from the latest Israeli-Palestinian conflict.