Fuel price hikes to cripple WA's transport and ag industries

In the past week, motorists have been forced to pay more than $2 per litre at bowsers across Perth and regional WA, as global costs for crude oil continue to rise due to Russia's invasion of Ukraine.

And there is little sign of reprieve on the horizon.

According to latest Australian Institute of Petroleum (AIP) data, State average diesel retail prices hit a 216.7 cents per litre high and 184.5c/L low in the week ending Sunday, March 13.

Meanwhile, motorists in regional WA paid 16.8c more per litre than week-ago levels, with bowser costs peaking at 218.1c/L and reaching a low of 186.6c/L.

Agricultural transport and freight companies have been left with no choice but to increase rates to cover the surging price of fuel.

It is another blow to an industry already suffering with the AdBlue crisis, labour shortages, high trucking costs and long backlogs for equipment.

Brunswick Junction's Wedderburn Transport manager Mark Talbot labelled it as a "very worrying time" for the agricultural industry.

Mr Talbot said transporters were bracing themselves for further price rises and as a result, would need to make steady increases of their own.

To paint the picture - Wedderburn Transport's regular feedlot run from Hyden to Bunbury cost $660 in fuel in January last year.

Compared to the same time this year, fuel costs jumped to $850 per trip and higher again this month at $1045.

Mr Talbot usually charges at a fixed cost for his trucking services, given the majority of Wedderburn Transport's customers are feedlotters.

However, he has been forced to charge an extra $3 per head of cattle to cover the cost of rising fuel prices.

Currently, if 90-head of cattle were put on a truck, Wedderburn Transport customers would be paying anywhere between $300-$400 more than they were 12 months ago.

"In the past, we have seen spikes in fuel prices - they go up and come back down and you absorb it seeing as you've been told it is short-term," Mr Talbot said.

"But this is different, we don't know how long this particular price increase is going to last or where it is going to settle back down to.

"As operators we have to be prepared and we have to keep up - if we don't we are suddenly going to be working a lot of cost-only jobs, which is where people will get caught."

Comparing fuel costs to year-ago levels, Mr Talbot said transport operators were paying at least 60c more per litre - up from $1.20/L to $1.80/L.

He said if high prices were to stick around for another six months it would "really hurt" the industry.

Mr Talbot added that prior to the petrol price pressures, the industry had been grappling with a 30-40pc increase in the cost of spare parts over a 12-month period.

On the other hand, he described the past 12 months as some of the busiest the WA transport industry had "ever seen" in trucking cattle.

And while this had kept drivers busy, there were also concerns it could have an impact in the next four to five months ahead.

"Traditionally, those cattle would head into the feedlot before being sent to slaughter," Mr Talbot said.

"As a transporter, you may shift them two to three times.

"But at the moment a lot of those numbers are coming directly off stations or properties and heading straight across the Nullarbor.

"A lot of Eastern States' trucks have been operating here, but the WA boys are getting a pretty good slice of it as well.

"It is a little bit nerve-wracking - hopefully there will be some numbers around to keep the industry ticking along."

Road Trains of Australia (RTA) managing director Dave Jones has never seen fuel prices this high.

RTA has more than a decade of experience in transportation of livestock, fuel and bulk commodities through the north of WA, Northern Territory and Western Queensland.

Mr Jones said diesel had increased by 40-50pc in the past nine months, depending on "where in the north" business was.

As a result of this, RTA recently introduced a fuel levy to help cover increased costs, which he said some customers were reluctant to pay.

"We made the decision, if the levy cannot be paid, we cannot do the job," Mr Jones said.

"Our customers have received significant money for cattle, sheep and grain this season.

"They might need to pass a bit of it on to others involved in the agricultural industry, like transport.

"We have the view that if we can't cover those extra costs, then we are going to park the trucks up until something changes."

Livestock and Rural Transport Association of WA president and Fyfe Transport principal David Fyfe said - as a country carrier - the last thing he wanted to do was charge customers more.

However, the industry had been left with no choice.

"As far as fuel goes - fuel is a big part of the cost in any transport industry," Mr Fyfe said.

"At a ballpark, probably 30pc of our cost is fuel and if we don't pass on those costs then we aren't there.

"All we want to do is earn a fair living."

According to Mr Fyfe's record, fuel increased by 25-30pc from mid-January to last week.

He said conversation in the industry was there could be further increases of 20c per litre in the next month or two.

"We have been increasing our costs since October last year," Mr Fyfe said.

"At the start of harvest last year, I was paying 52c per litre more than I was at the start of the previous harvest.

"That's how much it took off in 12 months.

"Since then we have been hit with a 35c increase in just three months - so in about 15 months we have been paying 85c per litre more for fuel."

Mr Fyfe said transport groups urged the Federal government to double the capacity of diesel available in Australia at any one time.

He said in June last year, Australia was meant to have 90 days of refined petroleum.

However, information he was provided with allegedly stated there was only 58 days.

"Twenty years ago, we had eight oil refineries handling nearly all the domestic fuel needed," Mr Fyfe said.

"Today, we have two refineries left - I think both are on the east coast.

"Thirty years ago, we had 100 Australian flag vessels that could move fuel, now we have 13.

"We are in a situation where we need something done.

"We aren't going to run out of fuel, but it is to my belief and understanding that is all we have available at this stage."

Mr Fyfe said the government had flagged a figure of "a several hundred million dollars" for fuel storage in Australia, but no one knew where it was located.

He said the fact Australia's fuel reserves were held in America "beggared belief".

"When the government announced they were going to store diesel in America, they took on board that industry was not happy.

"They are aware and are trying to make changes.

"What if you don't have a good supply of fuel in the crazy times of now and are relying on a boat load of diesel to come across that doesn't get here?"

Mr Fyfe said disruptions in the past 12 months - with rail line washing out and bushfires on the Nullarbor - had highlighted the importance of the transport industry.

Beyond fuel prices, he said there were pressures in labour shortages amid a record-breaking harvest and livestock selling seasons, as well as AdBlue security, spare part shortages and delays in receiving equipment.

"In a nutshell - our industry, Australia-wide, is under pressure," Mr Fyfe said.

"I believe personally, we are under pressure because of some red tape and also a huge growth in Australia.

"It is an incredible situation, I have been in this industry for 35 years and just seen it grow, but nothing like this."

No one has seen numbers like this before

WESTERN Roads Federation chief executive officer Cam Dumesny said while price rises overnight were common, "nobody had ever seen numbers like this before".

Last week, Mr Dumesny said one transport operator - who purchased bulk fuel - reported a 22c per litre increase in a week.

And the follow through of a situation like this would be the "cost of everything" onfarm rising.

Mr Dumesny said regional communities would feel the impact most, given they rely heavily on road transport.

He said freight rates were already up 20-odd per cent and counting.

"It could send some of our smaller operators to the wall because if they quote a job and they do it two weeks later, the fuel price could jump 20-30c in that time.

"If a third of their cost is fuel in a razor thin industry like ours - that means they are running at a loss.

"They are paying for the fuel, but not getting paid for 30 days, so there is this really intense negative cash flow."

Mr Dumesny has been keeping a close eye on what had been happening in other global markets, and identified parallels between the US and Western Australia.

Last Friday, he said inflation (in the US) was announced at just under 8pc overnight, which was the highest recorded in 40 years.

Supply chain disruption, labour shortages and fuel were identified as the biggest causes of this.

"In WA we have all three of those things," Mr Dumesny said.

"We are suffering from a larger skill shortage than they are in the US, with surging demand for freight and not enough people to do it.

"But we are also recovering from the supply disruptions from when the railway line was washed out."

Mr Dumesny labelled the situation in WA as "precarious" as to what inflationary impacts this would have on communities.

He said a surge in oil prices of those record amounts could ultimately create a recession.

"It was a bad situation already, but now there's this compounded problem of fuel shortages.

"The US has released around 60 million barrels of oil from their strategic reserve - to help soften the fuel price in the US.

"Australia can't do that as we would be lucky if we have a 44 gallon drum as a strategic reserve.

"So, we don't have the strategic buffers like the US, to help relieve price pressure which just serves to highlight our nation's fuel vulnerability."

So what needs to be done to help soften the blow?

Mr Dumesny said while nothing could be done in the short-term - as it was a global problem - Australia needed to immediately start building a strategic reserve of fuel in the medium and longer-term.

He said fuel prices would drive up the cost of living and cost of farming, full-stop.

"The input costs are going to be quite staggering because they are so fuel dependent to get it there.

"Similarly just the cost of living in regional communities is going to increase because it relies on road trains predominantly to get there.

"I can't see a solution around it, ultimately to take pressure off the supply chains at the moment we actually need a plan."

Supply chain security

SECURITY of supply has been the biggest issue flagged by farmers amid the fuel price increases.

IOR Petroleum head of strategy Nick Mackenzie said parts of the Australian economy were booming with high commodity prices, across resources and agricultural products.

As a result, he said farmers were particularly concerned about their products reaching the market, as they heavily relied on fuel to do so.

"Of course the prices hurt, particularly for businesses in the transport and logistics sector," Mr Mackenzie said.

"No one is happy about it and it does have some implications on choices our farming customers may make, but at the end of the day security of supply is the number one issue.

"We are fortunate in Australia, as we source much of our fuel imports and crude oil from Asia and Africa, far from current conflict zones.

"Removing Russian oil from our supply chain will have minimal impact on supply here in Australia."

Most Australian importers and resellers use the Mean of Platts Singapore (MOPS) to guide price.

At peak, this rose to levels of over 150pc for diesel in the past 12 months alone.

However, what Mr Mackenzie labelled as "most pressing" was a 100pc increase since the start of January to a peak of almost $US181 a barrel for diesel last Wednesday.

He said the speed of the price increase had "really caught people off-guard".

"There are a few different reasons prices have risen to what they have - one of those is supply issues, which predate the Ukraine and Russia conflict.

"Before the crisis analysts predicted high oil prices throughout 2022, with some estimates of $US125 - or more - a barrel for crude oil by the end of the year."

According to Mr Mackenzie this was mostly driven through an increasing lack of spare production capacity in OPEC countries, who are the main producers of oil.

He said the issue still existed, regardless of the war in Ukraine, however it also had an impact with demand for Russian crude oil plummeting.

Even without official sanctions, many western oil companies had chosen to self-sanction by announcing they would not be using Russian oil

"Suddenly we are talking about taking up to 10 million barrels a day of Russian oil production or refined fuel products out of the system," Mr Mackenzie said.

"That is the reason there have been those recent, very large increases in oil prices.

"Over time this will moderate itself, as Russia looks for alternative destinations for that oil, most likely in Asia."

Mr Mackenzie added in "minor good news" MOPS prices had started to reduce at the end of last week.

Despite this, they were still 14pc above what they were as recently as the start of this month.

Mr Mackenzie said if the index did not significantly change on week-ago levels, then the current "very high" fuel prices could moderate at the end of this week to early next week.

What had contributed to this was OPEC signalling a potential supply increase, discussions between the US and both Iran and Venezuela on potentially elevating sanctions and Russia indicating it would increase sales through Asia.

"The latest news over the weekend and this (Monday) morning is that each of those things is easier said than done," Mr Mackenzie said.

"So none are a slam dunk and we may see a lot of volatility in the next few weeks."

Generally, there is a short time lag of one to two weeks between changes in Singapore prices and Australian prices.

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