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Fuel Crisis
Hundreds of haulage operators could be forced out of business and hundreds
more could be forced into the black economy in the coming months if diesel
prices remain at current all-time highs. John Loughran reports.
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In the past 12 months (May 2004 to May 2005) the average retail price
of diesel has escalated by almost 20 per cent, according to figures produced
by the Automobile Association.
While the figures don’t directly relate to the haulage sector, where
operators predominantly buy in bulk at discounted rates, they do highlight
a worrying trend, which has seen fuel prices become the single biggest
issue facing the haulage industry this year.
Last month the price of diesel broke through the psychological £1
per litre barrier (at the pumps) for the first time since the price of
fuel was deregulated in October 1991.
It was a hammer blow for the industry in monetary and psychological terms.
Now that the £1 mark has been breached, it is most unlikely that
the price of diesel will ever slip back into the double-digit bracket.
With the United States entering the so-called “driving season”
and with an insatiable demand for crude oil in China, keeping crude prices
at above $50 per barrel, diesel and petrol prices are set to remain high
in the medium term.
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Those
were the days - before the euro
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Ireland is now the second dearest country in the euro zone for road diesel
with the average retail price for the month of May standing at 101.7 cent
per litre, just 0.3 cent cheaper than the dearest country, Italy, where
the average retail price was 102 cent per litre.
All this spells extremely bad news for the haulage industry, which is
finally getting back on its feet after two or three years in the doldrums,
when hundreds of operators went out of business as a result of ever-tightening
margins.
It is impossible to predict how the current fuel crisis will impact on
the haulage industry, but closures seem inevitable. Survival will depend
on hauliers’ ability to negotiate meaningful fuel surcharges with
their customers.
But hauliers have already pursued that particular avenue - with varying
degrees of success - to negotiate fuel surcharges. A return visit, while
vital might not yield the necessary result?
Many hauliers are working off fuel surcharge arrangements negotiated just
six months ago. A further, significant increase, while merited, will be
extremely hard to negotiate.
Employer groups such as IBEC, ISME and the SFA have been preaching since
the beginning of the year about cost containment and warning that Ireland
is losing its competitive edge. Calls for fuel surcharges will certainly
rub against the grain.
IRHA press officer Jimmy Quinn estimates that upwards on 100 haulage companies
could be forced to the wall in the coming months if fuel prices remain
at current levels, but in truth nobody can predict with any great degree
of certainty how the crisis is going to pan out.
Feedback from the insurance industry suggests that scores of hauliers
are failing to renew their insurance premiums, when they fall due. The
association says that two haulage companies are going to the wall per
week and this figure will certainly increase if fuel prices remain at
their current level.
Quinn is pinning his hopes on swift Government action to avert the crisis.
“It is not good enough for the Government to sit on its hands and
say it cannot do anything until the Budget. The Government needs to take
action now,” he commented.
The IRHA believes the Government could deliver much needed relief to licensed
hauliers through the establishment of a rebate scheme “where fully
licensed and tax-compliant hauliers are given a tax rebate on the amount
of fuel they burn.”
This proposal has been knocking around in various guises since the late
1990’s so it seems unlikely that Finance Minister Brian Cowen would
move to implement such a scheme at this juncture.
Last summer when diesel prices began their relentless upward surge, then
Finance Minister Charlie McCreevy said a reduction in excise duty on diesel
could only be addressed in the context of the Budget.
By the time the Budget arrived McCreevy had departed for Brussels and
present incumbent, Minister Cowen passed up on the opportunity to reduce
excise duty on diesel, although he did leave it unchanged.
Despite calls from employers, consumer groups, hauliers and motoring associations
Minister Cowen is unlikely to move to reduce excise duty on diesel ahead
of his December Budget.
The Minister will vehemently argue that spiralling fuel prices are a market
issue and that the cost increases will have to be addressed in the context
of the market and not through tax reductions.
Ironically, the Government is the only winner in the current crisis because
of its double taxation policy. On each litre of diesel sold, the Government
collects 36.7 cent in excise duty. It also rakes in a further 21 per cent
VAT off the retail price.
In May 2004 the average retail price of diesel stood at 86 cent per litre,
leaving Ireland the fifth dearest country in the euro zone behind Germany
(95 cent), Italy (91 cent), Netherlands (87 cent) and France (87 cent).
So why has Ireland leap-frogged to almost top of the league?
The chairman of the Dail Public Accounts Committee, Michael Noonan suspects
that the fuel companies in Ireland are engaged in excessive profit taking
at the expense of the haulage industry.
Noonan has called on the Competition Authority to investigate the spiralling
cost of diesel in the Irish context.
The Limerick East TD says the rise in the cost of diesel is having huge
cost implications for haulage operators and wants an immediate investigation
to find out if oil companies are involved in non-competitive practices.
“It may be just a market trend and connected to the cost of different
types of crude oil. But it could also be oil companies deciding to make
extra profit from diesel, knowing they have a huge captive market, dependent
on this fuel, particularly in the haulage industry, he commented.
He added: “I am requesting the director of the Competition Authority
to examine why diesel costs are now exceeding petrol costs at most locations.
Diesel is the lifeblood of the transport industry. The lower comparative
price of diesel must be restored.”
Hauliers struggling to keep their heads above water, may choose to move
into the black economy in an attempt to keep their companies afloat in
the short term.
That could mean reneging on PAYE, VAT commitments, driving without tax
and insurance, and running their vehicles on “green” or washed
diesel.
Watch this space!
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