Saturday, February 26, 2011

How Will Middle East Uncertainty Affect International Freight Shipments?

Speculation on Fuel Prices Unsettling the Industry
Shipping News Feature

UK – WORLDWIDE – In the past few weeks Britain has witnessed concerted pressure on the Government to find a method of reducing the impact of fuel costs on the logistics sector. The FairFuel UK campaign has garnered support from all quarters and just yesterday the Freight Transport Association (FTA) issued details of a submission it has made to the Treasury ahead of the March Budget calling for the repeal of the proposed rise in fuel duty. Duty is set to rise by a minimum of 3.5 pence per litre but haulage companies are already witnessing diesel prices at record levels.

Simon Chapman, FTA’s Chief Economist, said:

“Political instability in other countries and the impact this has on the price of a barrel of oil is beyond the Chancellor’s control. However, the level of tax he then heaps on top of it is certainly not. The Budget needs to prioritise measures which create an economically sustainable environment in which businesses have confidence in the future. The planned fuel duty hike is simply a revenue raising ruse. It offers no benefit to the economy, serving only to push up costs and inflation and erode competitiveness. The freeze in fuel duty in April, which FTA has asked for, will help check rising prices and improve cash flow for businesses in the UK.”

Acknowledging that the massive political shifts occurring across North Africa and the upper Middle East however may well prove to be emphatically more important than any local political actions; despite the outcry for a ‘fuel stabiliser’ there has been no concrete suggestion as to how to fund such a thing if crude oil prices soar from their current $90 to $110 a barrel level to the $220+ which has been predicted as perfectly possible by commodity analysts from organisations like Nomura.

Past price surges have always resulted in a collapse in consumption but the international freight market cannot turn off consumption like some other sectors. More likely rather is the imposition of the inevitable fuel surcharges by ocean freight carriers and international hauliers and logistics companies.

As usual the people to be hardest hit will be the smaller operators who are much more sensitive to these fluctuations and yet have less power to impose extra costs onto their customers. Groups like the FTA are calling for road user charges to ensure foreign trucks pay their way, but such policies can lead to a protectionist attitude and resentment regarding membership of trade expanding groups like the European Union.

The hardest hit if things do deteriorate may in fact be the United States where low fuel prices are a tradition envied by many other countries, but where a sharp rise will undoubtedly result in political backlash. As the FTA says the real need for the future of international logistics lies in the rapid adoption of the newer technologies which are not oil reliant in part or in whole.

Encouragement in the development and uptake of such delivery vehicles can lay within the gift of Governments and, long term, may prove to be by far the less expensive option. The need now is for fast, fair and firm political action to ensure that the infrastructure for commercial transport of the future is proactively developed to ensure the dependency on a finite resource like oil is ended forever.