Under pressure: Twin pinch on transport industry will tighten

By DITA DE BONI

The term black gold has taken on a whole new hade of meaning for the domestic transport industry as it struggles to contain costs and remain competitive in the face of a depressed currency and rocketing fuel prices.

Local transport operators have increased freight rates up to 10 per cent over the past few months to compensate for the double whammy of a weak dollar and petrol pump panic.

But they say the full impact has yet to be felt.

Higher transport charges will flow through to affect the costs of manufacturers, retailers and distributors alike.

While a 20 per cent drop in the value of the kiwi dollar against the United States dollar over the past 12 months has provided a fillip in haulage of exports to ports, industry sources say the gains have not offset losses in other areas.

Moreover, freight forwarders are loath to pass on the full costs in a fiercely contested market.

"The whole industry runs on imported costs," says Bob Flanagan, executive director of the National Road Carriers Association.

"The industry, especially the small, family-owned businesses, are caught between a rock and a hard place.

"In a climate where clients are playing one operator off against another, competition is too stiff to pass on costs.

"But all big fleets - like Mainfreight and Owens - hire owner-drivers, who have to pay all their own capital costs.

"We have 2100 trucking members and we've noticed many more people just parking their trucks or leaving the business over the last three months because it's just too hard."

Mr Flanagan says a small business pays around $300,000 for a truck and trailer. The cost for a vehicle had climbed by up to 26 per cent in the past year.

On top of that, fuel accounts for between 10 and 18 per cent of running costs.

Road-user charges can add up to $20,000 a year in tax for long-haul vehicles.

While petrol rises of nearly 50 per cent in the past year have motorists screaming for mercy, diesel, a trucker's lifeblood, has climbed 85 per cent, leaving many owner-operators hamstrung.

"Even the little guys - the courier van operators - are working for hourly rates of, in some cases, as low as $4 after costs are taken out. It's pitiful.

"We've seen some operators go broke, lose their houses."

Brain Sadgrove, president of the Customs Brokers and Freight Forwarders Federation, agrees the downstream effect of higher costs could spell job losses.

"We are seeing a significant reduction in the amount of import freight being booked.

"While importers are able to purchase forward exchange cover, which can provide a level of protection, decisions are always having to be taken as to the ability of goods to be sold at a fair price.

"This takes into account the additional cost of the freight movement as well as the exchange rate."

Brodie Stevens, from Owens, says all transport companies are incurring costs because of the rise in fuel prices but the larger ones are "having to pass the costs on, to some extent."

The effects are being felt by clients as contracts come up for negotiation. "No one likes an increase, but as long as it is quantified, and with clients aware of the fuel situation, we all have to wear it."

Divisional general manager Brett Wilson says the effect of higher exports has been neutralised by the low dollar and fuel prices.

"There has been an increase in volumes in recent weeks, but you normally get a lift in activity around this time."

Air New Zealand's Alistair Carthew says that the low dollar and the Olympics could increase the passenger-carrying business by up to 20 per cent over the next month.

But "it would be fair to say that the low dollar is having an impact on cargo haulage, which makes up around 11 per cent of overall group revenues."

While airfares have risen recently, "we have not passed on the [increased] cost of fuel to exporters, but we are monitoring the situation very closely."

The airline pays for fuel, airline leasing and spare parts in US dollars and has "good hedging systems" which ease extremes in pricing.

Even in US dollars, however, fuel has gained 53 per cent over the past financial year.

The last quarter GDP figures showed the transport industry to be a principal contributor to growth, posting a rise of 3 per cent.

WestpacTrust economist Donna Purdue says the contribution was largely attributable to an upswing in tourism.

Despite a squeeze on domestic markets, she says the transport industry (lumped in with communications) will continue to contribute positively in the September quarter although most analysts are giving a slightly negative growth forecast overall.

Industry analyst Richard Sullivan says road transport is likely to suffer most due to "rising costs, heavy competition, poor infrastructure and subdued demand."

Seaports could expect more exports and fewer imports, as widely predicted.

Falls in imports would affect Auckland the most," and "competition should keep profits flat."

"Domestically oriented companies are likely to face margin squeeze," says Mr Sullivan.

"Investment in infrastructure is required, but probably won't happen until business conditions become more favourable."