Fuel analyst says motorists being ‘held to ransom’ as diesel price drop not seen at bowser
By Sourced Externally
December 12, 2022
It’s been a challenging year for many in the road transport sector.
“I think everyone’s struggling,” said Jim Gossow, manager with livestock transporter Road Trains of Australia in the Northern Territory town of Katherine.
His company, like most other trucking businesses, has faced worker shortages and surging costs of the fuel additive AdBlue.
But the biggest change this year has been hugely increased fuel costs, with NT diesel prices rising by around 70 cents per litre since January.
“Whether it’s cattle transport, road freight, tipper freight … I think everyone needs a break,” Mr Gossow said.
“It’s over the top.”
Most operators have increased fuel levies to compensate for high prices, but Mr Gossow said they were still bearing some of the cost.
“The worst thing is you’ve got to pass the cost on to someone. Someone’s got to pay at the end of the day … all the customers are paying, everyone’s paying.”
Why aren’t diesel prices dropping?
But with a drop in the wholesale diesel price over the past month, are diesel users starting to see the benefits?
Apparently not, according to fuel analyst Geoff Trotter, who said average retail prices for diesel did not reflect the slump in wholesale prices.
“The international price has dropped, but diesel retailers and service stations have pretty much converted that price drop into extra profit for themselves,” said Mr Trotter, the general manager of Fueltrac.
“Most diesel users in Australia are being held to ransom by these oil companies.”
According to the Australian Institute of Petroleum, the national average retail price of diesel was $2.27 per litre in the first week of December, 29.8 cents higher than the average wholesale price.
That compares to a margin of 15.7 cents per litre between average wholesale and retail prices at the start of November, when diesel sold for an average of $2.36 per litre.
Mr Trotter said it was important to recognise the impact diesel prices had on inflation.
“The diesel price impact has the most direct effect on cost of living, energy, input costs into transport and logistics, food distribution and a whole range of other products.”
Market volatility to blame, industry says
But Australasian Convenience and Petroleum Marketers Association (ACAPMA) chief executive Mark McKenzie said high margins were due to a volatile wholesale price.
“You can’t just look at one month in isolation,” Mr McKenzie said.
“You need to look at what happened in the month prior and the month after.
“If you look at October, [profit margins] were actually near zero to negative. That really demonstrates that part of the challenge for most retailers is navigating some extreme volatility, in terms of both oil prices and the consequent impact on wholesale diesel prices.”
Mr McKenzie said the industry was “dealing with a level of volatility that we haven’t seen in the market for more than 25 to 30 years”.
“When you’ve got volatility the way we have, a business will always err on the side of actually making sure that they’re mitigating their loss and they’ll price accordingly.”
A spokesperson for the Australian Competition and Consumer Commission (ACCC) said “wholesale petrol and diesel prices are generally reflected in retail prices following a lag … after retailers have sold stocks they bought at a different (higher) wholesale price”.
“Often the lag is longer in regional and rural areas which have lower turnover than metropolitan service stations.”
Forcing retailers to show profits
In remote parts of the NT, diesel continues to be very expensive — it was selling for $3.79 per litre in the Arnhem Land community of Ramingining, $2.99 in Yulara and $2.50 in Tennant Creek.
Last week the NT parliament debated a bill introduced by the opposition Country Liberal Party (CLP) that would “force retailers to disclose the profit margin on fuel”, according to Member for Katherine Jo Hersey.
Ms Hersey said it would “increase transparency and competition while driving the price at the bowser down”.
ACAPMA’s Mark McKenzie said the proposed bill would result in a loss of competition and “increase prices for motorists in the NT over time.”
“When you get to profit margins, you’re actually exposing deeply sensitive information that can result in smaller businesses, which make up a large part of our market, being marginalised to the point of closing,” he said.
“If you set it too low … you actually marginalise or make smaller businesses with lower margins unprofitable.
“If you set it too high, then effectively what you do is increase the price for everybody.”
Fueltrac’s Geoff Trotter also said there were better solutions.
“I don’t think asking service station operators to put a profit margin up on their website is going to do anything about the diesel prices.”
He suggested the government instead set a cap on fuel profit margins.
“If the whole reason for looking at this legislation is because people think that the prices are too high, then use the [NT government’s] powers to set a price that everybody believes is reasonable.
“That will have a much more direct impact on prices that people consider too high than asking people to put some number up on a website.”