Freight transport buoyed by oil price, harmed by refugee crisis

The oil price collapse is making goods transport cheaper, but the migrant crisis brings difficulties
Migrants wait near the A16 motorway near the site of the Eurotunnel in Coquelles, near Calais © AFP

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The global fall in oil prices has buoyed the UK freight transport industry, but the European refugee and migrant crisis has weighed heavily on it, leaving a distinctly mixed outlook for the rest of 2016.

The industry, whose combined fleets of 380,000 trucks deliver three-quarters of goods to market according to Department for Transport estimates, welcomes the drop in oil prices. Fuel is one of its most significant outlays and is estimated by the UK’s Freight Transport Association to account for some 30 per cent of total costs.

For the most part fleet operators have been slow to assume any permanent shift to lower fuel costs since a barrel of Brent crude plummeted from a peak of $115 18 months ago to not much above $30 in early February. It is now nearing $45. Oil prices have proved notoriously volatile and predictions of future prices have often been spectacularly wide of the mark.

But this time, fleet industry leaders are concluding that lower fuel cost could be here to stay for some time.

The fracking revolution in the US has helped create a worldwide glut. Saudi Arabia’s stance on maintaining production levels and the expected re-emergence of Iran as a major supplier after the lifting of western sanctions are combining, say petroleum industry analysts, to allow for a long-term reduced cost base for the freight transport industry.

The effect on truck fleet operators has been positive so far. “It’s undoubtedly a big benefit,” says James Hookham, the Freight Transport Association’s deputy chief executive.

A surge in fuel prices over a decade ago, which caused blockades by truckers at storage depots and refineries, led to the FTA recommending that fleet operators put fuel price escalation clauses in their contracts, so that they were not caught out by further sudden rises in costs.

“So now, having said, ‘Make sure you share your pain with your customers,’ the truck fleets have to accept that it cuts both ways,” says Mr Hookham. “The clauses have kicked in, in reverse, and the savings currently being made are being shared with customers — or they should. What the fleets have gained on the swings they’ve lost on the roundabouts.”

So the extent of the windfall resulting from the drop in the price of crude is nowhere near as large as many might think, argues Mr Hookham.

“Although there has been a 60-70 per cent fall in crude oil prices, the actual reduction in bulk diesel price is only about 15 per cent because of the fixed tax element,” he says. “So, given that the gain is shared by most hauliers with their customers, there’s no great profits boost for the industry. There may have been a bit of a windfall from the oil price, but a lot of it has already been spent.”

He acknowledges, though, that if low fuel prices are sustained, this will provide a more solid financial environment for fleet operators than they have enjoyed in the past.

£100 billion

Value of trade on the Calais-Dover route per year

Counting against this lower cost of fuel is the disruption that the Calais migrant crisis has caused to many operators. Declaring the port and Eurotunnel a “war zone” earlier this year, Road Haulage Association chief executive Richard Burnett claims that “time is running out for hauliers at Calais”. He has called on the French government to deploy their army.

Mr Burnett’s demand exemplifies the frustration of fleet managers faced with what they fear will remain long-term and extremely expensive disruption as migrants have besieged truck fleets at both port and tunnel in order to gain surreptitious entry to the UK. As well as the immediate inconvenience of disruption in transit, perishable goods are lost, suppliers wait longer to be paid, driver hours and costs rise sharply and supply contracts are breached. The FTA claims that each day of severe disruption can cost the industry up to £1m.

The overwhelming importance of the Calais-Dover route to trade with continental Europe is not widely appreciated. It accounts for £100bn worth of trade a year and more than 2.5m goods vehicles use the route annually, according to Port of Dover statistics.

Ironically for the freight companies, principal ferry operator P&O in January reported carrying record freight volumes last year, despite the periods of disruption on the Eurotunnel approaches.

Both RHA and FTA chiefs are determined to keep up pressure on the UK and French governments to resolve the situation.

This article has been amended since publication to make clear that Mr Burnett described Eurotunnel and the port as a “war zone” earlier this year.

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