Implications of Rising Fuel Costs to Freight Transportation
The rising cost of fuel has been the cause of many problems that affect the various sections of the Australian economy. One of the sectors that have been adversely affected is the transportation and logistics company. The high fuel price has meant that these companies have to increase the cost of service delivery which now translates the burden to the consumer. This means that the country will have to reduce its dependence on fuel by either reducing the activities that require fuel, or resorting to other sources of energy.
Freight transportation in Australia is considered a large part of its economy with the GDP realized from it rated at 28 percent (Potertton 2012). It currently provides employment to approximately 100,000 people in the country directly and another 150,000 who take part in supporting activities of the industry. Although the growth of this industry over the years has been deemed as slow, it is still considered steady, thus, still promising. The advancement in technology has also greatly aided the industry in terms of growth because it has seen the introduction of the use of ICT in logistics, better vehicle technology as well as improved commerce in general for the country.
This is not to say that the industry does not face its own share of challenges. One of these challenges that threaten the industry is the ever increasing fuel prices. This is a problem that is being faced by several other countries and industries in the world. In 2004, the price of fuel in Sydney Australia was 0.91 cents on average per liter. Since then, the prices have continued to escalate. Currently the price of fuel in the country is said to range between 1.35 to 1.59 dollars per liter. The main cause of this rise in fuel prices in the country is the overall rise in prices of fuel in the world. Other than that, there are two more factors that are affecting fuel prices in Australia. One of these factors is the size of the country. Australia stands as the only exceptional continent that houses just a single country. As such, the country apparently is large. It is therefore quite difficult to supply fuel to all parts this has therefore caused the price of pumping the fuel to these areas to increase. Another factor that affects these prices is taxation policies in Australia. Each state within the continent has its own policies on taxation. This leads to addition of many other costs that are added to the general cost of fuel.
High Cost of Fuel
The increase in fuel prices is having great impact on the logistics company in Australia. This is because it is the main component of this kind of transportation. Shortages of the commodity can paralyze all logistics operations. As a result, several other areas begin to feel the pressure that is being faced by the logistics company. The freight transportation industry has continually found the need to make sometimes drastic adjustments in their operations to ensure that they continue to benefit from their activities.
This escalation of fuel prices has led to the introduction of the Emissions Trading scheme in Australia. This is because of the great effects that are felt by the increased fuel prices that automatically raise the prices of all other goods and services that are affected by the freight transportation company. The Emissions Trading scheme (ETS) refers to an initiative put in place by the government to ensure that companies reduce their emissions and thus save on use of fuel (Morris 2012). The ETS will charge for purchase of credits by companies that want to emit more than the set threshold of from oil use. This will have a direct impact of these companies since most of them will have to reduce the quantity of their operations to avoid being taxed highly. If implemented, it is expected that the cost of carbon could reduce by almost half from the 24 dollars it is going for currently. This however, does not guarantee that these companies will necessarily have to reduce their operations. In order to continue realizing the profits that they do now, the burden of these taxes will now have to be passed on to the consumers.
The supply chain is also feeling the pressure that has been impacted by the increased fuel prices. This is because it largely depends on liquid fuel to facilitate transport and logistics for production in various sectors of industry. First, it is the consumers who get to suffer most as a result. This is because most companies need to continue making profits while having to adjust to the increase in fuel prices. This therefore means that they have to pass on this burden to someone else. That someone happens to be the consumer. This is witnessed in the higher traveling prices and the general cost of transportation of humans and goods within and outside of the country.
This increased fuel price has also caused major problems for the freight transportation industry. This is because most companies are finding it difficult to keep up with these prices and thus are implementing cut backs in their transportation. For instance, they have had to reduce the amount of transportation that they had in the past. Generally, transportation in bulk is much more cost effective that transportation of less cargo. Therefore, these companies have to maintain the cargo until it reaches a certain amount that they deem fit for cost reduction before the transportation begins. This therefore is causing delays in several other companies, industries and even individual activities that are otherwise used to more frequent modes of transportation. For those who cannot keep up with these delays, companies have to charge them much more in order to facilitate the frequent transportation that they require.
The rapid changes that are brought about by fluctuating fuel prices are having big impacts on the profitability of the logistics companies. This is because, when the fuel prices go up, the companies too have to increase the prices of their services, but are still lagging in profit making. When the fuel prices go down, companies too reduce their prices but are still able to make desired profits. Unfortunately, higher prices are experienced more than the lower prices.
Solutions and Recommendations
The main solution, split into several parts, is usually about finding ways in which human operations can be less dependent on fuel. This, however, seems rather difficult in the current world, with the many industries that are coming up as a result of increased technology and industrialization in the world.
One of the first solutions that should be adopted by Australia is the proposed Emissions Trading scheme (Morris 2012). This is a scheme that has been put in place to ensure that companies reduce their dependency on carbon. This therefore automatically leads to reduced prices due to lower demand and higher supply.
Gas preservations may also bring in a lot of help with regards to dealing with escalating fuel prices. Companies and other stakeholders should seriously consider the use of gas as a replacement for fuel. This will also decrease their dependency on electricity, which is also directly affected by fuel prices, and hence are just as high. This can be done by the government imposing obligations for reservation of gas to evade use of fuel. The use of gas should be adopted by many sectors of the logistics industry such as transportation of cargo and also in general transportation by humans around the country.
Another solution that should be adopted by the country is to cut on taxes levied on petrol and other fuels. Currently, the tax for petrol stands at 38 cents per liter. There is also an additional 10 cents that is charged on all goods and services in the country with the exception only on basic foods.
The country and its occupants should also consider revising their activities with regards to their dependency on fuel. For instance, the residents should reduce their dependency on fuel consuming modes of transportation such as personal cars. They should instead consider switching to other forms of public transport such as buses and trains. They could also try walking when the distance they are supposed to cover is not so long as to require a locomotive. For those who feel they must use their personal cars, they should formulate a method in which this is done economically. One way to do it is by adopting the carpooling method. This is a method that has been adopted by some countries to reduce congestion on the road. Cars that have only one person in them are not allowed in certain sections of the road. Thus, they always find themselves on more congested parts of the road while those who are driving in twos and more enjoy clearer roads. This system can also be borrowed by Australia but for their case, it should be used to reduce the amount of fuel that is used. For instance, the government can put in place a system where some days of the week people are entirely not allowed to drive alone in their cars. This can also be effectively implemented through the provision of certain discounts for people who share their cars on particular days.
Propositions have also been made towards the blending of petrol with ethanol. This is because the fuel extracted from fossils is what is expensive, thus, affecting the prices of fuel in general. Therefore, if this blending is done, the amount of fossil dependent fuels will be reduced almost by half. Ethanol can be produced from sugar refinery, thus, saving us from the fear of using up wheat crop for its production.
Australian logistics industry will continue to suffer from the effects of increased fuel prices. This problem will soon escalate and stop being a problem only for Australia but for other countries that depend on it for one reason or another. This is as a result of sections of the economy of the country beginning to decline. For instance, the manufacturing industry has begun facing challenges as a result of these impediments. Therefore, it is imperative that the solutions outlined above, in addition to others be considered.
Hall Morris. 2012. “The fuel Prices Crisis.’ The Transport and Logistics News.
Potterton, Philip. 2014. ‘An overview of the Australian Road freight transport Industry.’ Australian Government; Department of Transport and Regional services
Wittman Hans & King David. 2010. “The State of Logistics.” Science Real and Relevant Conference.