As a globally connected economy, remaining at the forefront of industry trends, regulations, and environmental changes is essential for business owners within the transport & logistics sector.
In needing to do this, operators must consider the rising impacts of dealing with changing fuel excise and how to better improve processes within their business. Both designed to ensure a competitive edge in an ever-growing industry.
We have highlighted key areas of consideration for transport and logistics operators, and where fuel prices may head across the remainder of the year:
Where are Fuel Prices Heading in 2023?
The effects of growing macro-environmental factors (global supply-chain issues, the risk of recession, and the conflict in Ukraine) have placed a lot of uncertainty on fuel prices in Australia. Continuing in 2023, this will like be an on-going issue impacting operators, with increased focus being made surrounding fuel consumption to power vehicles and higher fleet movements.
To understand where fuel prices may be headed throughout the year, it important to highlight the factors that normally affect pricing and its fluctuation. These mainly pertain to areas such as:
- International benchmark prices (i.e. manufacturing costs & production / supply & demand);
- the Value of the Australian Dollar
- Wholesaler and Retail Pricing
- Excise Duty; and
- the Petrol price cycle in Australia
The above are highly volatile in nature, resulting in prices likely to continue to surge for the immediate future. Another factor also surrounds the introduction and removal of support measures to stagnate looming consumer price increase over the past few years in response to the pandemic period.
In early 2022, temporary measures were introduced as part of the 2022/23 Federal Budget, with a fuel excise aimed to halve the tax charged on each litre of fuel at 22.1 cents for a six-month period. The excise fuel reduction remained in place until September 2022, with tax rates now returning back to around 48 cents per litre.
Whilst there has been a push for an extension to the support measure for an additional six-months, Government concerns arise surrounding missed excise revenue (close to $3 billion) which can be reinvested into the Australian economy.
The Australian Government is also looking to reform fuel taxes, which may impact transport businesses and their operators. A recent Grattan Institute report documented potential Government reforms to the fuel tax credit framework, with aims to remove the current allowance of 21 cents per litre. As a result, impacts could be felt not only across the industry but in other supply chains and for consumers.
Those facing the biggest impacts will be businesses and operators who have a fleet consisting of vehicles heavier than 4.5 tonnes.
It is likely that more announcements are still to come surrounding the report, with it being introduced prior to this years’ Federal Budget in May for consideration and Royal Assent.
Other Impacts of Fuel Price Increase & the Removal of Fuel Tax Credits
| Increased Running Costs |
A fuel price increase would heighten operating costs of businesses, with operators needing to spend more money to keep their vehicles fueled and on the road. A resulting scenario could lead to higher prices for shipping goods, with companies needing to pass costs onto their consumers. |
| Reduced Profit Margin |
Higher fuel prices could reduce profit margins for transport businesses, especially those already operating on thin margins. As a result, businesses may be forced to close or consolidate in order to stay competitive. |
| Changes in Logistics |
With a rise in alternative vehicle options, companies may opt for more fuel-efficient vehicles or shift to rail / sea transport for long-haul routes. |
| Increased Pressure for Alternative Fuels |
The continuing movement of transiting to alternative fuels will increase. There will be greater pressures on the transport industry to change to alternative fuel sources such as natural gas, electric, or hydrogen fuel cells. This could be a long-term benefit for the industry, as these fuels are often more sustainable and cost-effective in the long run |
| Shifts in Consumer Behaviour |
Further shifts in consumer behaviour may be likely, with individuals potentially less likely to purchase goods which require long-distance shipping. Changing consumer behaviour could increase demand for more locally sourced products or result in a greater review of distribution channels – with emphasis placed on those goods transported across the country compared to international freight. |
What to Do with Aging Equipment & Fleet?
In building your business offering, having a replacement strategy for an aging fleet and equipment can be beneficial. This can potentially ensure logistic operations are maintained and a greater competitive advantage sustained. However, for many transport operators, deciding when vehicles should be replaced past their “optimal shelf-life” can be a challenge.
Whilst equipment and vehicle fleets age at varying rates, when establishing your replacement strategy, consider:
- Improved Fuel Efficiency
Emerging technology and new fuel consumption processes in recent years have resulted in next generation trucks and vehicles holding greater fuel efficiency than earlier models.
With these vehicles, transport & logistics businesses can benefit from significant cost savings involved in keeping on-road.
- Reduced Maintenance Costs
One of the biggest cost investments operators face surrounds the maintenance and repairs of older vehicles in order to remain road-worthy. This can be a significant investment of time and dig into the businesses bottom-line, influencing potential cash-flow.
In replacing aging vehicles and fleets with newer models, businesses can reduce these costs and minimise vehicle inactivity or downtime.
- Increased Reliability
Investment in newer vehicles can result in greater on-road reliability and reduce expenses which arise due to breakdowns during operation (a common occurrence as vehicles age). By investing in newer vehicles, businesses can reduce potential delays and lost revenue.
- Compliance with Regulations
Changes in industry regulations has seen greater focus on how a vehicle operates, its use, and safety specifications. As a result, new trucks often come better equipped with the latest safety features and updated emissions standards. These ensure businesses remain compliant with government regulations, and avoid increased spending on an aging fleet to maintain the newest compliance standards.
- Improved Driver Satisfaction
Investment in newer vehicle fleets can also correlate to increased driver satisfaction and retention. With newer vehicles offering greater levels of comfortable and modern amenities, drivers may be more inclined to take additional shifts or travel long-haul routes, as compared to when operating an older vehicle.
Tax Considerations involved in Fleet Upgrades
In upgrading older vehicles, plant and equipment, businesses may have access to an Instant Asset Write-Off deduction. This reduction provides eligible businesses with an asset write-off of up to $150,000, where purchased or used in the year the write-off is claimed.
As the deduction closes in June 2023, many businesses may be encouraged to replace their fleet and other equipment. It is important to note, availability of new vehicles and equipment may be a consideration for businesses owners, with supply & demand an rising factor given the popularity of the deduction.
Prior to making any decisions on purchasing new equipment or vehicles, it is important to consult you a professional adviser to ensure the purchase matched business planning, cash-flow, and is eligible for any available tax concessions.
For More Information
For more information on our services supporting the Transport & Logistics sector, please contact Smiljan Jankovic (Managing Director & Transport industry specialist) on (07) 3002 2699 | info@agredshaw.com.au.
