18 February 2016

After months of discussions around retail fuel pricing and margins the ‘conversation’ in the media took another turn over the last week, with the ACCC writing to the industry requesting an explanation for the difference between the price of fuel at the terminal (the TGP) and the price of fuel at the service station (known as the Gross Indicative Retail Difference or GIRD) in the last quarter of 2015.  This ‘please explain’ has been met with response from the industry that highlights the danger of using averages of averages when assessing national markets, and the importance of understanding the nuances in the purchasing and pricing approaches within the fuel industry.

On Monday the ABCs 7:30 Report explored the retail vs wholesale fuel price matter in depth, and spoke to ACAPMA CEO Mark McKenzie about the recent request from the ACCC to explain why the September 2015 quarter showed record high GIRD, or difference between the wholesale and retail prices.

‘ACAPMA was recently asked by the ACCC to explain the factors that it believes may have impacted on the increase in the 5 City GIRD that was seen in the September quarter last year.  We contacted members and undertook a detailed analysis of the five cities in question and turned up several important factors.’

‘The first is that the ACCC is using averages of averages and grouping five distinct and separate markets.  What we found when we looked at each of the cities separately for the September quarter was that the GIRD in Brisbane and Sydney actually decreased by 0.91 and 0.54 cents per litre respectively.  GIRD in Perth remained largely constant with a very minor increase of 0.08 cents per litre , while in Melbourne and Adelaide it increased by 2.79 and 2.36 cents per litre respectively.  Noting that the increases that were shown in Melbourne and Adelaide were from a much lower base.’ Mark continued.

In the response to the ACCCs request for information ACAPMA also outlined that changes to the purchasing approaches of some large volume industry participants, whereby rather than purchasing fuel at the ‘spot’ price of TGP fuel is purchased on a ‘rolling average’ approach, could contribute to the apparent lag in retail prices difference when the TGP goes down along with crude oil prices.  The rolling average approach protects fuel purchasers from the up and down volatility in the TGP, however in times where the TGP remains low for extended periods the rolling average approach results in purchasers having to wait for the benefits of lower TGP to flow through to the rolling average before they can access at that price point, which impacts on retail prices and is often demonstrated in a lag.

‘As we have outlined for some time now, the fuel industry is not a single group, nor is it simply populated by large multinational corporations as many still believe.  The majority of retail fuel outlets in Australia are independently owned and operated, most of these by small businesses.  These businesses, like any business, are entitled to make a profit and are actively competing for customers, in a highly regulated and scrutinised industry.’ explains Mark.

‘We understand and welcome the investigation into the competitiveness of our industry and note that detailed examination by the ACCC has shown extremely slim margins and even losses in the past.’

‘ACAPMA is concerned however, with the public and policy utility of continuing to use average GIRDS for the five capital cities as a measure of the reasonableness of retail prices.  The same can be said of the use of the price of crude oil as the only indicator when discussing fuel prices.  Crude oil is only one element of the cost of retailing fuel, and while it may be subject to movement up and down based on international markets and the performance of the Australian Dollar, the other elements of cost do not necessarily move in a similar pattern.’ Mark adds.

‘It is our strong belief that, in its quest to simplify the messages for consumption of the general public, the ACCC has inadvertently created perceptions that fuel retailers are gouging Australian motorists. Such assertions have been, and will continue to be, hotly refuted by ACAPMA on behalf of its member businesses.’ concluded Mark.

Click here for more on this ‘conversation’ , or click here to see the coverage and transcript from the ABCs 7:30 Report 16/2/2016.