Why rising diesel prices could cost you at the checkout

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1. 0:05Speaker 1: Kia ora, I'm Katie Bradford and this is The Front Page, a daily podcast presented by the New Zealand Herald. When
2. 0:15Speaker 1: the price of moving goods around New Zealand rises, who picks up the bill? Increasing fuel prices are putting pressure on the trucking industry, with fuel now accounting for up to 30%.
3. 0:26Speaker 2: Of operating costs.
4. 0:28Speaker 1: And that cost can travel far beyond the petrol pump into the price of groceries and other everyday essentials. So how much can freight companies absorb and how much gets
5. 0:37Speaker 1: passed on to us? Today on the front page, I talk to Justin Teague-Umbers, CEO of National Road Carriers, about the squeeze on trucking and what his industry wants from
6. 0:48Speaker 1: the next government. Thank you, Justin, for joining me. Fuel prices, you take a look at that, you drive past those pumps and you go, but the freight industry feels it
7. 0:59Speaker 1: more than anyone, right?
8. 1:00Speaker 3: Yeah, it's really starting to hurt again, unfortunately, for the freight sector. So I was looking at the numbers today and right back in February 28th when it kicked off, I think around mid-March or possibly April, it got to
9. 1:12Speaker 3: a peak of just over $ 4 a litre.
10. 1:14Speaker 2: For diesel?
11. 1:15Speaker 3: For diesel, yeah. And that's just pump price, not even talking about road user charges. And that had gone off the base in February.
12. 1:24Speaker 4: It was around about $ 1. 80 a litre. So that was a massive climb, you know, over 100%, which is obviously....
13. 1:30Speaker 3: Doubling the price for transport operators now we've got it's crept back down to about two dollars forty i think was the recent low so it sort of stabilized and settled and now we're back up last week we saw
14. 1:40Speaker 3: around three dollars thirty or so seems to be hovering around 320 all of that just adds up to a huge pain in the wallet for transport operators so you know they might where they'd had a truck that was
15. 1:51Speaker 3: a four or five hundred dollar fill you're getting closer to eight or nine hundred dollars.
16. 1:55Speaker 1: Now And the key question there is, one, obviously the impact on those businesses, which we will talk about, but at the end of the day, those costs have to go somewhere. How much are those costs being passed on
17. 2:05Speaker 1: to consumers? And on the flip side, what are they doing to try and not pass.
18. 2:09Speaker 2: Those costs on?
19. 2:11Speaker 3: Yeah, so transport is a really lean game, so it's very margin thin. There's a huge amount of competition out there in terms of thousands of transport operators, owner-drivers providing services,
20. 2:22Speaker 3: so they've got to compete with one another on price.
21. 2:24Speaker 3: So already it's a really intense competition for them. And what happens is when you have a huge cost like fuel go up, which can be 20, 25% of the
22. 2:33Speaker 3: cost for a transport operator overall, their ability to negotiate their rates really diminishes. So they're faced with either having to eat into their own margin. They'll all be as lean as they can be now after 18 months of
23. 2:45Speaker 3: recession so that they've really got no wiggle room. So it starts to get pretty hard. What good operators have done is they've got a fuel adjustment factor FAF, fancy term,
24. 2:55Speaker 3: but what that allows them to do is they build into their contract. If there are any swings in diesel price, then that will get added on or reduced if the
25. 3:03Speaker 3: price goes down to their per kilometre or per tonne rate.
26. 3:08Speaker 4: So they've got a way of.
27. 3:09Speaker 2: And so that's in.
28. 3:10Speaker 1: Their contracts with whoever their customers are, including, say, government departments, right?
29. 3:15Speaker 1: Are most people willing to have that in their contracts?
30. 3:18Speaker 4: Yeah, great question.
31. 3:19Speaker 3: So talking to our members at NRC, the feedback seems to be Yeah, the majority are happy and understand the need for it. And I think there's a maturity, and especially as a crisis has gone on, I don't forget
32. 3:30Speaker 3: what month we're up to now, is it six, seven, eight months? I think there's an understanding that this is a longer game and it is part of the new sort of near-term world that we're operating in. So businesses
33. 3:41Speaker 3: just having to accept and go, all right, we have to find a way to let that through. And then hopefully they can recover it when they're selling it, the goods at the supermarket or whatever it is.
34. 3:50Speaker 4: But that means.
35. 3:51Speaker 2: They're passing it on to the customers at the supermarket, right?
36. 3:54Speaker 2: If that's what they choose to do.
37. 3:55Speaker 3: And you and I enjoy paying for it. Yeah, that's right.
38. 3:59Speaker 3: And that's playing out the world over, of course. There are a number, though, of customers who just, they themselves are in difficult positions. We have had a recession and we've just been starting to recover when this hit. They're
39. 4:09Speaker 3: giving pushback as well. So it's not easy street. We have had a number of transport operators talk to us and say, look, we just can't get this through.
40. 4:16Speaker 2: How hard is that?
41. 4:17Speaker 1: For small businesses and small contractors, one who perhaps don't feel like they have the leverage. And then often they're also dealing with small players as well, right?
42. 4:25Speaker 4: Yeah, that's a really good point.
43. 4:27Speaker 3: There is a definite power imbalance there because often the vast majority of our members are running one to three trucks.
44. 4:33Speaker 3: So they're small businesses, the definition of a small business.
45. 4:36Speaker 3: And so when you're going up, you might be working into a large transport operator or or you might be working into a supermarket, and, of course, you're dealing with a much larger operation there, and often it's a take
46. 4:47Speaker 3: it or leave it. Here's the contract, take it or leave it. So what they have to do is go, right, well, can I meet all of my compliance costs to be able to safely and legally run a transport business and
47. 4:59Speaker 3: also have a bit of margin left on the table so I actually can make a living out of this?
48. 5:03Speaker 4: So it is. It's incredibly difficult.
49. 5:05Speaker 1: And we thought this was going to be a short, sharp shock, right, in the end of February.
50. 5:08Speaker 2: Yeah.
51. 5:09Speaker 1: And we're now, as you said, what, six or seven months into it and no sign really of it. We felt a bit of a dip go on and maybe thought things were going to get better and now it's
52. 5:18Speaker 1: skyrocketed back up again. Compared to what those discussions we were seeing, and I know there were daily, weekly meetings with MBIE and other agencies at that point in time
53. 5:28Speaker 1: when it all kicked off, how are people feeling now compared to that initial shock factor?
54. 5:35Speaker 3: You're making me relive those moments of sitting in all those government meetings back in the day. But you're right, when it hit, it was a shock. And there was a lot of focus, and in particular, on supply. Supply
55. 5:45Speaker 3: was the really big question, 20% going through, what does this mean for us at the bottom of the Pacific?
56. 5:52Speaker 3: And I think what we did see initially was some of the pumps ran dry. actually down in South Island as well. So there was a lot of panic buying.
57. 5:59Speaker 4: It was panic.
58. 6:00Speaker 2: Yeah.
59. 6:00Speaker 3: There was actually no need. We, we had three months of supply lined up all the way through. So we haven't had a dip. So I think what we've learned is actually, um, our supply is robust and, and the
60. 6:11Speaker 3: government went and did a good, um, you know, an excellent deal with Singapore food for fuel. We've got the surety of supply. We're a rounding era when it comes to volume as well, but we can afford to pay for it. So we're kind of an ideal customer in
61. 6:22Speaker 3: some ways. So I think the fair factor over, um, supply side is gone, which is good because we don't want that sort of behavior where you're.
62. 6:31Speaker 4: Getting runs on pumps.
63. 6:33Speaker 3: Where now it's got to, though, like all of us, is just this geopolitical uncertainty.
64. 6:37Speaker 4: How long are we in this for?
65. 6:39Speaker 3: We don't know.
66. 6:39Speaker 4: It's certainly for the longer term.
67. 6:42Speaker 3: And I think you're just seeing ebbs and flows, as I said before, down to 240 now back at 330.
68. 6:47Speaker 3: I think what we're seeing is businesses are just recognizing this is part of the new operating environment. It necessitates mature conversations with your customers. Costs are going to go up.
69. 6:58Speaker 3: They will go down as well when supply comes back on.
70. 7:02Speaker 3: And it's just part of what we have to live with in the near term. So we are seeing that, which is why, quite interesting this time, prices have gone up.
71. 7:11Speaker 3: Is our phone running hot with members complaining and panicking?
72. 7:15Speaker 3: The answer is no. We've had some, look, what can we do? We want the government to help, etc., But in general, I think it's part of operating a transport business.
73. 7:24Speaker 3: You're always prone to external uncertainty and supply chain just does a really good job of getting on with it.
74. 7:30Speaker 1: How hard is it on, particularly on those smaller operators we talked about? Have we seen some go under? Have we seen an increasing number of liquidations or companies collapsing as.
75. 7:39Speaker 2: A result of this?
76. 7:40Speaker 4: Yeah, we have.
77. 7:42Speaker 3: It's difficult to get precise numbers out of Stats NZ, but from our own anecdote in terms of our membership, We have seen a modest, not a dramatic, but a modest uptick in terms of, right, we're getting close to
78. 7:53Speaker 3: retirement age. We're pulling out or business is just winding up.
79. 7:56Speaker 3: But there's no doubt there's a number of operators going, well, how long can I last? And you can only defer the decisions like, do I take on another driver? Do
80. 8:05Speaker 3: I do that work on the workshop or that key repair for the truck or not? You can only kick the can down the road so long. And so some are definitely hitting the wall and winding up.
81. 8:15Speaker 2: Do you have any idea what that increase might be?
82. 8:17Speaker 4: No, I don't have a number to hand.
83. 8:19Speaker 3: And we've got a little bit of a data challenge here out of Stats NZ because we're not even clear on the precise number of transport businesses because of the way that we capture that against the New Zealand business number. Long, boring problem, but it does make it hard to sort
84. 8:31Speaker 3: of spot the trends.
85. 8:32Speaker 1: I think in terms of the costs, I saw that one, fuel costs now outweigh labour costs for the freight industry.
86. 8:40Speaker 2: And second, that it is about 30% of operating costs.
87. 8:42Speaker 2: Is that Correct?
88. 8:43Speaker 3: Yeah. It's a little bit how long is a piece of string because, of course, it all depends on the size of your operation and the distances you're running. But yeah, generally, that's correct. I think the mid-tier operations fuel tends to
89. 8:54Speaker 3: be around about 20%, maybe 25% because they're also running buildings and sites and other things. But yeah, it's a huge portion of cost. Labour and fuel are always the
90. 9:04Speaker 3: two biggest items typically. And so when you get swings like this of over 100% on fuel, it's absolutely going
91. 9:12Speaker 3: to hurt. And I think for customers who have long-term relationships with their transport provider, they just have to work together and help one another through it. And we're seeing
92. 9:22Speaker 3: a lot of that, which is good.
93. 9:30Speaker 1: And it's really important to remember, right, it's not just the fuel costs because the diesel that goes into making other products or you talked about, you know, your truck needing fixed, some of those parts, et cetera, those are,
94. 9:42Speaker 1: you know, and I remember actually when all this kicked off, people being worried about the cost of bitumen and plastic and some of those key products. What are those looking like and what's the impact been of those?
95. 9:51Speaker 4: Yeah, yeah, absolutely.
96. 9:52Speaker 3: Bitumen's a key one which has gone up massively and, of course, that's our road building. Right at the moment we're, you know, got a shortfall on what it needs in
97. 10:03Speaker 3: terms of funding to be able to build roads so that's having a significant hit. In terms of all of agriculture runs on diesel and quarries there's everywhere you look
98. 10:14Speaker 3: there's diesel and we've put we're getting close to $ 2 billion now offshore as a result of this increase so that's that's nearly two billion dollars is no longer in
99. 10:25Speaker 3: the new zealand economy it's just gone overseas to pay fuel um and that's because we've got such dependency on this so it's also a we're starting to well sorry not starting we're continuing to talk to government about the
100. 10:34Speaker 3: need for energy resilience um and that's that's we're moving into electric and hydrogen even if we'd had five percent of the fleet running on it it gives us some
101. 10:43Speaker 3: buffer We don't. We're in the well below percent in terms of number.
102. 10:48Speaker 2: Of alternative fuel vehicles.
103. 10:50Speaker 4: So less than 1% of vehicles.
104. 10:52Speaker 2: Have moved to any form of.
105. 10:54Speaker 4: Yeah.
106. 10:54Speaker 1: Yeah. So, and is there any talk, because I was going to ask about that, Is there talk feeling that any want to try and move to electrification or hybrid
107. 11:05Speaker 1: vehicles or, you know, any of those options?
108. 11:08Speaker 2: And what are the options?
109. 11:09Speaker 3: Yeah, I think it's given a really clear reminder that there's all sorts of good reasons to go down this path. So, yeah, I think we're seeing renewed interest from government. We partner,
110. 11:20Speaker 3: National Road Carriers partner with ICA. They're looking at what they can do to help conserve use and get more fuel efficient on the diesel side as well as moving
111. 11:28Speaker 3: into other modes. I think it's just a really stark reminder we've got a great opportunity in New Zealand with our hydroelectric that we can move to electricity. It just
112. 11:37Speaker 3: can take concerted government policy across the board. So I'd say we're seeing the beginnings of a recognition that moving
113. 11:47Speaker 3: to resilience is just as important as carbon reduction as well.
114. 11:52Speaker 3: So we're hoping that those two drivers will actually see some investment in infrastructure to get us there.
115. 11:57Speaker 2: What are the obstacles? What investment's needed?
116. 11:59Speaker 3: Key one is for electricity is just getting charges out there now.
117. 12:05Speaker 4: So there's actually.
118. 12:08Speaker 3: Very few dedicated 100 or 300 gigawatt charges for a truck around the North Island. So there's charges on site at depots, but no ability to journey charge. So we
119. 12:19Speaker 3: need to get that solved. We're looking into possibilities of can one get set up around Taupo, for example. Because the thing you've got to do is try and line it up with driver hours.
120. 12:30Speaker 2: Where they actually go, right?
121. 12:30Speaker 3: Yeah, where they go and the driver having a rest as well, a 15-minute charge. So that's the key obstacle on the electricity side. On the hydrogen side, it's still
122. 12:40Speaker 3: just the cost of hydrogen itself. It's getting much closer to parity with diesel where it is, but it's still a little bit uncertain.
123. 12:47Speaker 1: And speaking of the government and what might be needed, you've obviously put out an election manifesto, six points in that.
124. 12:54Speaker 1: What's key, you know, this is the time now for.
125. 12:56Speaker 2: You to get your message across to those paddies, right?
126. 12:59Speaker 1: What is it if you were going to ask them, I know this is a really simplified question, but if you're going to ask each paddy to do one thing that you think needs to help immediately, what would it be?
127. 13:08Speaker 3: Yeah, so the one thing we've called for, we put out our election calls a few weeks ago and we called for a supply chain minister. And that's, Lord knows,
128. 13:17Speaker 3: we don't need any more ministers. We're already overstocked. It's not about creating a new minister, but what it is is about actually getting more aligned policy out of government
129. 13:26Speaker 3: because supply chain cuts across transport, it cuts across energy, it cuts across MB, immigration. With infrastructure build in particular,
130. 13:34Speaker 3: there's not enough coordination between road, rail, We've just had a ferry, Cook Strait Ferry, up in Singapore, halving the inter-islander capacity because we haven't had a dry dock built.
131. 13:45Speaker 3: Just seen the fast-tracked approval this week for that dry dock in Northam to come through.
132. 13:50Speaker 4: Terrific.
133. 13:51Speaker 3: So I think just if there's one thing that we did, it would be focusing on supply chain productivity and aligned
134. 13:59Speaker 3: policy because the sector's worth around $ 59 billion. So if you make a 1% or 2%, improvement on that, that's a gift that just keeps on giving to the New Zealand economy year after year.
135. 14:09Speaker 2: What sort of.
136. 14:09Speaker 1: Discussions have you had with KiwiRail about moving freight off-road?
137. 14:14Speaker 1: I know that's not necessarily in your members' interests, but moving some of that freight off-road and onto rail. I talked to KiwiRail about this a few weeks ago, and they've got a bit more coming through their South Down Depot.
138. 14:24Speaker 4: Yeah, they do.
139. 14:25Speaker 2: And obviously those truck drivers are bringing it in there, right?
140. 14:28Speaker 1: But they are certainly supportive of that idea of we need to get more off-roads, right?
141. 14:32Speaker 2: Yeah.
142. 14:33Speaker 4: Yeah, look, absolutely.
143. 14:34Speaker 3: And look, it is actually in our members' interests, road freight operators are the largest customers for KiwiRail. So it's about, and this is what I mean about coordination of supply chain.
144. 14:45Speaker 3: It's not a this versus this, road versus rail. It's actually about making the system work together. And rail does a fantastic job in particular scenarios. And so It's great
145. 14:56Speaker 3: to see that extra capacity and productivity come out of Southdown.
146. 15:00Speaker 3: It's not a sort of zero-sum game competition. And it needs to so that customers get the most efficiency that they can. So it's got to be horses for courses.
147. 15:08Speaker 3: What's going to get the box, the product, whatever it is, to your door the cheapest way, ultimately?
148. 15:14Speaker 2: And we don't know how long this is going to continue to be a problem for, right? We could end tomorrow, dreams are free.
149. 15:19Speaker 4: Yeah.
150. 15:20Speaker 1: What do you do if this is another, you know, what does the industry need to do to stop any more of those companies going under, to stop prices getting
151. 15:29Speaker 1: even higher for people at the moment? What are you going to do in the next six months, a year, however long it goes on for, to really cope with this.
152. 15:37Speaker 2: I guess?
153. 15:38Speaker 4: Yeah, yeah.
154. 15:39Speaker 3: Look, I think one of the key areas that we can do as an industry is there's a recognition that there's a baseline to operate a truck and a transport
155. 15:49Speaker 3: service safely. And the danger that we see at the moment is in these times when this cost crunch comes on is it can drive a behaviour at the bottom
156. 15:59Speaker 3: end of the market where, as I said before, people start cutting costs on safety. And then ultimately what that can lead to is dangerous trucks on the road. The
157. 16:10Speaker 3: problem that we have in New Zealand is there can also be a behaviour from customers just to simply take the cheapest.
158. 16:16Speaker 4: Rate and turn a blind eye to that.
159. 16:19Speaker 3: In Australia, you have a thing called chain of responsibility, which is where if a customer employs a transport service and that transport service has an accident causing industry, liability can flow all the way back up to the customer
160. 16:30Speaker 3: as well. Would you like to see that here? We'd like to see not necessarily lifting and dropping chain of responsibility as it is in Australia, because it does drive
161. 16:39Speaker 3: some challenges, but there's definitely room for everyone being responsible for the safety outcome and having skin in the game.
162. 16:46Speaker 4: And we've actually got legislation.
163. 16:48Speaker 2: And that would stop cost-cutting, right? Because cost-cutting leads to safety issues.
164. 16:52Speaker 4: Yeah, that's it.
165. 16:53Speaker 3: Everyone needs to be held to account We've got the laws and legislation we need in place. It's just we haven't had WorkSafe do necessary prosecutions upstream to have that stick.
166. 17:02Speaker 3: So I think that's the key thing. And it also allows those compliant transport operators, the vast majority who work hard on their safety, to actually be able to hold their value and go, no, this is the minimum price.
167. 17:13Speaker 4: Customers are aware of it.
168. 17:14Speaker 3: And then they go from there rather than sort of cutting costs and employing unsafe operators.
169. 17:21Speaker 2: Aside from that... Mm-hmm.
170. 17:23Speaker 1: Is there anything else you think needs to happen in terms of contracts and procurement to protect the industry going forward?
171. 17:30Speaker 1: I mean, I guess if more people use the fuel adjustment factor.
172. 17:33Speaker 4: It would help, right?
173. 17:35Speaker 3: Yeah, I think so. It's allowing room for fuel adjustment factor, recognising that it's a significant component of transport costs. It is going to move around a lot in the near
174. 17:46Speaker 3: future and just all businesses will have to factor that in themselves and how they sell their products. We're also saying through the government and when they're procuring transport services
175. 17:56Speaker 3: to make sure that they're indeed playing the true cost of transport. Because as taxpayers, we want the most efficient answer, but we don't want to go where it's cutting to the bone and causing safety issues. So I think shoring
176. 18:07Speaker 3: up in that area will be key for enabling longevity of the sector in terms of not losing capacity.
177. 18:14Speaker 1: And we've seen the government and Labour put a pause on the fuel tax increases, obviously, which I'm sure will be welcome. I think you were earlier calling for road
178. 18:24Speaker 1: user charges to be paused as well.
179. 18:27Speaker 2: Any hope that that would continue?
180. 18:28Speaker 4: That would happen, sorry?
181. 18:30Speaker 3: Yeah, we actually weren't calling for a road user discount. So, yeah, look, I think government, its move on Fed and RUC, pausing
182. 18:42Speaker 3: for 12 months, I think that's a recognition of the cost of living and also a way of, I guess, offering some relief to transport operators, albeit it doesn't arrive until January, so it's hard for the ones now.
183. 18:53Speaker 2: On the rack, you mean?
184. 18:57Speaker 4: Yeah, that's right.
185. 18:59Speaker 3: Ultimately, this is a long-term challenge because already we don't have enough money to pay for infrastructure, so we're yet again kicking the can down the road. And infrastructure investment is critical. So just to give an example at the moment,
186. 19:10Speaker 3: out of Taranaki, we've got the Awakino Gorge has been closed over 20 times in the last 12 months. So those operators, it's the energy basket, food basket, delivering up
187. 19:22Speaker 3: in North Island, Auckland, they're having to drive 300 to 400 kilometres extra when diesel prices doubled.
188. 19:28Speaker 1: So if those roads were fixed, you wouldn't have this issue.
189. 19:32Speaker 2: So it's a double whammy, right?
190. 19:33Speaker 4: Yeah.
191. 19:33Speaker 3: So you can get into a death spiral here if you're not careful. So we actually want RUC to be maintained.
192. 19:39Speaker 3: It would actually increase us to go ahead, but it all comes down to the whole economy paying the true cost of infrastructure. the true cost of safety and compliance and the true cost of transport.
193. 19:49Speaker 2: And that's a much bigger conversation.
194. 19:51Speaker 1: Maybe for another day. It's probably a good way to end on that. A lot to talk about there. I really appreciate you coming in today, Justin Teague, UMBA's CEO of National Road Carriers. Who knows how long this fuel
195. 20:02Speaker 1: crisis will continue for?
196. 20:03Speaker 4: Well, fingers crossed tomorrow. Like you said, Katie, it'll finish.
197. 20:06Speaker 2: Thank you, Justin.
198. 20:07Speaker 4: Thanks for having me.
199. 20:11Speaker 2: That's it for this episode of The Front Page.
200. 20:14Speaker 1: You can read more about today's stories and extensive news coverage at nzherald.co.nz. This episode of The Front Page was hosted and produced by me, Katie Bradford. It was produced
201. 20:25Speaker 1: and edited by Richard Martin with studio operations from Kane Dickey and executive production by Jane Yee. Subscribe to The Front Page on iHeartRadio or wherever you get your podcasts
202. 20:36Speaker 1: and tune in tomorrow for another look behind the headlines.