Stark warning to operators on rising costs

In News4 MinutesBy Nick LeggettOctober 14, 2022

Costs for road transport businesses have risen almost four times higher than inflation in the last quarter, according to the latest Grant Thornton Cost Index.

The quarterly index shows that there has been an overall quarterly increase to June 2022 of 6.24% to road transport business costs, compared with a 1.66% increase in the CPI inflation for the same period. Between September 2018 and September 2020, despite an increasing CPI, transport costs managed to stay relatively stable. However, in the last two years, the transporting inflation index is showing unprecedented increases and the gap between that and CPI is growing wider.

The index demonstrates that just passing on inflation level increases isn’t going to be enough to keep some trucking businesses afloat. The industry cost increases are overwhelmingly higher than inflation, driven by fuel increases of 29.64%, followed by an increase in the cost of tyres of 4.10%.

Nobody will be surprised by this, but we are now armed with the information. A key benefit of our association is to present information and data, including the Grant Thornton Cost Index, so that operators can better run their businesses.

As a road transport operator, to stay in business, you have got to charge appropriately. Yes, that will affect consumers but the trucking industry cannot afford to carry additional costs itself. Businesses need to understand their own costs, engage with their customers, and pass those costs on. It is important for the economy that trucking companies remain viable to avoid an even more challenged supply chain than currently exists.

Economist Cameron Bagrie warned at the conference that there are about six economic cycles to be aware of. Trucking businesses are now on “cost watch”.

We know from a recent industry survey, that one in five transport companies say they are unable to pass any of their costs on, and that is a concern. The good news is that the same survey told us over 40% of industry businesses said the Government’s Road User Charge (RUC) discount of 36% was helping with these cost pressures.

Ia Ara Aotearoa Transporting New Zealand is continuing to advocate for an indefinite commitment from the Government to extend the RUC discount, fuel excise tax reduction, and public transport fare reduction.

Whether it’s people or freight, we know that transport gets more costly on households and businesses in tough economic times. Our fear is that we are only at the beginning of hard times. While our members are working hard to minimise costs to customers, but they also have to survive as businesses.

Government discounts on fuel make all the difference right now. Removing them on January 31, 2023, would be a disaster. If you look at industry costs and what’s happening in the wider world economy, we are still going to need that support come January 31. Transporting New Zealand, on behalf of the road transport industry, will not be giving up our advocacy and our fight to ensure those discounts are maintained for the foreseeable future.

By Nick Leggett, chief executive Ia Ara Aotearoa Transporting New Zealand.