Fuel price cut offers little hope for freight and food price rise relief

Minister of Transport Michael Wood. Photo / Mark Mitchell

The Government's move to cut fuel prices at the pump looks unlikely to help bring down escalating freight costs, and consequently food prices at the grocery store.

The reduction in fuel excise tax doesn't apply to pumped diesel, which much of the country's supply chain runs on - and any relief for transport operators through the associated announced reduction in road user charges RUC) will take time to be implemented.

Minister of Transport Michael Wood has confirmed to the Herald that implementation of the RUC cuts, to be "broadly equivalent" to the fuel excise duty (FED) cut on petrol, is a work in progress by officials.

"RUC is not charged on a per litre basis, it is a distance charge that is pre-purchased in multiples of 1000km," Wood said.

"There are 85 different RUC rates depending on the weight of the vehicle and other associated factors. Reduced rates of RUC will be announced soon, as there is still some work to be done by officials to accurately apply the reduction across all of the rates.

"The reduction on RUC rates will be broadly equivalent to the FED reduction. While RUC reductions will not come into effect as immediately as FED reductions, they will remain in effect for a full three month period once implemented."

Don Braid, managing director of transport and logistics sector heavyweight Mainfreight, got on the phone to Wood today about the RUC situation.

He said because the fuel tax reduction doesn't directly apply to diesel it was unlikely to "assist at all" with easing freight charges.

"I have just spoken to the transport minister and they are trying to work it through the RUC system. That won't help coastal shipping or rail. The RUC system requires 42 days' notice for an increase or decrease. That delay won't help either."

Mainfreight managing director Don Braid says because the fuel tax reduction doesn't directly apply to diesel it was unlikely to "assist at all" with easing freight charges. Photo / Supplied

Transporting NZ chief executive Nick Leggett was also doubtful the fuel cost reduction would help slow down general prices influenced by rising freight costs.

"My sense is it's unlikely to stabilise prices as there is so much economic volatility and there are multiple impacts on freight costs such as supply of ships and containers, supply of labour, geopolitical environment, minimum wage increases and general inflation," he said.

"Fuel and RUC are a small part of overall costs, the reduction may assist businesses in the very short term, but as we don't know what is beyond the three months there is some nervousness about that."

While the RUC side may take a while to effect, at least it would still apply for three months from the date of implementation, he said.

The two supermarket chains Foodstuffs and Countdown have been approached for comment on the possible impact on food prices of the fuel tax reduction.

Dairy company Fonterra, the country's biggest business and a major player at the supermarket dairy chiller, said the 25 cent reduction per litre in fuel excise duty and road user charges would "only somewhat offset the recent fuel price hikes".

"We operate nearly 500 tankers and about 1000 light vehicles, the vast majority of which run on diesel," the cooperative said.

Goodman Fielder, another major manufacturer of dairy products and other groceries, has also been approached for comment.

Responding to the global fuel price shock and spikes in prices at the pump, the Government on Monday at midnight reduced FED by 25c/litre and signalled a similar reduction in RUC. It also provided funding to local authorities to have the cost of public transport.

The measures will be in place for a three-month period.