According to the Transport Exchange Group (TEG), a digital road freight organisation that monitors the cost of fuel in the UK on behalf of road transportation businesses, the latest hike in fuel pricing means that operating costs for couriers and hauliers have never been higher in the country. As the latest TEG price index data makes clear, road transport businesses of all kinds have had to pass on soaring operating costs to their customers with new pricing structures designed to cope with the inflationary pressure of fuel costs at the pump. According to their last figures, which include data from numerous road transport organisations in the country up to and including June 2022, typical courier prices are up by 8.7 per cent compared with the previous twelve months.
Interestingly, TEG points out that the average price per mile of road haulage has dipped a little compared with June 2021. However, the increased costs associated with recruitment and retention in the industry – as other sectors continue to compete for drivers and other types of workers – have meant that most courier firms have upped their fees. Remember that in some locations, price hikes are even higher than the national average, usually because of a dearth of personnel if not because of fuel prices themselves. Of course, the average price of fuel has underpinned many of the decisions courier firm bosses have made about how much to charge their clients in what remains a competitive marketplace. That said, an annual price increase of 8.7 per cent is unprecedented in many people’s professional lifetimes in the road freight transportation industry.
As for now, it should be pointed out that last month’s average price per mile charge among both haulage lorries and lighter courier vans, was 18 per cent more than it was just three years ago. With the latest figures, it is also possible to determine what many in the industry would recognise anecdotally, that prices are at their highest level so far this year. The median price per mile that TEG’s index recorded stood at 122.0 in June since the index had begun collating data. It had been at 103.1 points in the same month in 2019. In the first six months of 2022 alone, 4.3 points have been added to the index. It should be noted, however, that much of this increase took place in the first quarter of the year, a possible sign that price inflation may be starting to level out. Certainly, this appears to be the case among haulage firms because these companies experienced more modest growth. Overall, the index reveals that courier firms’ pricing is tracking above the level of the road freight industry as a whole.
According to Lyall Cresswell, who is the Chief Executive Officer at TEG, operational costs from ongoing driver shortages and fuel costs are mostly what are accounting for the increases in prices. “We hear about road transportation industry issues every day from our members”, the CEO said before adding that he thought they were coping admirably with the pressures on them at the moment given the shifting landscape in the sector. “With consumer confidence at all-time lows,” he said, “We may well see a downturn in demand for the services of road freight companies.” Citing the idea that fewer people would be shopping online at the cost of living crisis deepens, he said this might be a blessing in disguise.
According to Creswell, offering the industry a little breathing room might not be such a bad thing if consumers choose to spend less ordering items from e-commerce platforms. He said that this may soften the impact of driver shortages, something that could stabilise wage growth in the sector and also mean that supply chain bottlenecks could be cleared. Admitting that no one truly knows what the future has in store for couriers and haulage firms, Creswell said that TEG would be ‘very keen’ to see an operational cost reduction that would benefit essential fuel customers. “There is no question that hauliers and couriers are both essential users [of fuel],” he said. Such a move, he suggested, would consequently offer a respite in the road transport industry as well as helping consumers.
Whether or not a dip in demand or a lowering of fuel tax will help to ease the burden that courier firms and hauliers now face is yet to be seen, of course. What the industry knows is that the current hike in the prices hauliers and couriers are charging can only be seen in the light of record-high fuel prices in the UK. Prices of 167 pence per litre for petrol and 180 pence per litre for diesel would once have seemed unimaginable but they are now the norm and, in some cases, good forecourt prices where they are to be found. So, with both fuel prices and wider consumer inflation continuing to soar, road freight firms have been dealing with an ever-worsening squeeze on their profitability. Some have even seen margins so tight that they’ve been operating at a loss. As such, they have been left with little choice but to put the price of their services up.
What is perhaps even more telling from last month’s TEG index figures is that prices have climbed consistently every month. Indeed, it has been this way since the start of 2021. Therefore, although there may be some levelling out as the market adjusts to new levels of demand – particularly among haulage firms, if not couriers – few would bet against another month-on-month upturn in the current quarter. After all, this would reflect the wider cost pressures building in the road freight industry including rising pay demands, greater vehicle costs and increasing interest payments on loans. There again, a hike in road transportation firms’ national insurance payments is also expected to be an upward pressure on the prices companies set.
The Road Haulage Association, which represents a significant number of operators in the sector backed up TEG’s findings. According to that body, fuel makes up over a third of a commercial vehicle’s operating costs. Given that profit margins between one and two per cent is common in the industry, any shift in the operating costs a road haulage firm faces from fuel needs to be translated into increased prices almost immediately to avoid eating into such tight margins. As the association puts it, every penny counts because even slight fluctuations in fuel prices will have a big impact on hauliers’ bottom lines. The Road Haulage Association has also echoed TEG’s CEO in his call for an essential user rebate on fuel duty. They say that this move would cut fuel costs for haulage firms and, in the end, mean that the end consumer would enjoy lower pricing for goods.
Indeed, according to a statement issued by the industry group, relief from runaway inflation in the haulage industry is becoming increasingly urgent. They cited the National Institute of Economic and Social Research which pointed out that almost two-thirds of the UK public were currently seeing total household bills were higher than their income. The Competition and Markets Authority (CMA) also recently reported that fuel retailers were already passing on the five pence fuel duty cut despite some misgivings about this among consumers. The CMA’s work allayed some fears that fuel retailers had simply been profiteering by not passing on cuts since the former Chancellor of the Exchequer, Rishi Sunak, announced the reduction in duty.
Among the calls for further action was one from Kirsten Tisdale, Aricia Limited’s Director of Logistics Consultants and a Fellow of the Chartered Institute of Logistics and Transport. Speaking about the latest index figures from TEG she said that the upturn in pricing continues to offer insights into where the UK freight market has been for some time and where it remains today. “The pressure on the profits of firms in the road transport sector… can be seen in the latest Business Insights survey.”
Produced by the Office for National Statistics, Tisdale pointed out that one in eight of the responses in the survey among transportation and storage businesses showed they were having to seek financial interventions just to get by. “This was up from zero in the previous survey where this question was put to them,” she said. According to Tisdale, this issue has been worsened by the recent trend among British firms to stockpile more than they used to due to supply chain problems outside of their control.
Until the government is re-established and a long-term Chancellor takes up his or her role at number 11 Downing Street, it is not yet known whether a further tax cut in fuel duty for essential users – and others – will come about. That said, the majority of candidates have committed to the idea of cutting taxes in some way. Whether or not fuel duty will be among these cuts is unknown, however. One thing is for sure. This is that TEG’s price index will continue to offer a valuable tool for determining how much fuel and wage costs are affecting the industry as 2022 progresses.