FAF to the fore

New Zealand Truck & Driver - - Fleet Focus -

FIRST IT WAS FLUCTUATING FUEL PRICES CATCH­ING OUT trans­port op­er­a­tors who didn’t have (or felt they didn’t have) the abil­ity to ad­just their rates ac­cord­ingly. Now it’s fluctuating fuel prices…. AND re­gional fuel taxes: Those al­ready in place – in Auck­land – and those pend­ing, with many other ar­eas al­ready head­ing in the same di­rec­tion, or tipped to soon.

It puts a fresh fo­cus on a Fuel Ad­just­ment Fac­tor (FAF) – a cal­cu­la­tion that’s pre­de­ter­mined and brought to cus­tomers’ at­ten­tion, pro­vid­ing a means by which op­er­a­tors can pass on such ex­tra fuel costs.

The FAF con­cept isn’t new. It’s ap­plied (or ap­pli­ca­ble) across the en­tire trans­port in­dus­try….and is em­ployed in other coun­tries.

But the re­cent in­tro­duc­tion of the Auck­land Re­gional Fuel Tax (RFT), has brought FAFs to the fore­front once more. And, al­though in­dus­try bod­ies are clear in their ad­vice to fac­tor in this vari­able cost, it re­mains an area of con­fu­sion and con­cern for many.

Road Trans­port Fo­rum CEO Ken Shirley doesn’t mince his words on the sub­ject: “Of course there’s ten­sion be­tween freight sup­pli­ers and cus­tomers – ev­ery­one’s try­ing to get more for less. But the ap­proach here is clear.

“Trans­porters must iden­tify a FAF in their in­voic­ing. It’s a fac­tor that’s out of their con­trol and they need to re­cover it.”

He ex­plains that by in­clud­ing it, op­er­a­tors are show­ing the cus­tomer the jus­ti­fi­ca­tion for charg­ing – and says that this should ap­ply to gov­ern­ment taxes and charges too.

He warns that those who don’t ap­ply a FAF – in­stead try­ing to ab­sorb the costs them­selves, to be more com­pet­i­tive – will find them­selves in fi­nan­cial trou­ble in the long run.

“Not only is fuel dy­nam­i­cally priced and chang­ing all the time, but the fall­ing New Zealand dol­lar and geopo­lit­i­cal un­cer­tainty and ten­sions, all con­trib­ute to in­creased fuel costs,” says Shirley.

Put sim­ply, op­er­a­tors can’t sus­tain­ably ab­sorb these costs – and the FAF sys­tem is a way of mak­ing sure they don’t get left out and are able to re­cover those costs, he ex­plains.

Chief ex­ec­u­tive of the Na­tional Road Car­ri­ers As­so­ci­a­tion, David Aitken, agrees: “A FAF may not al­ways work for smaller jobs, but on­go­ing con­tracts must in­clude it. It is not un­rea­son­able and should be a sim­ple process – us­ing a pre­de­ter­mined cal­cu­la­tion.” On av­er­age, he says, it will be two to three per­cent added onto the to­tal cost “and if your cal­cu­la­tions are cor­rect, it should ad­just for fuel in­creases and changes.”

He adds that the RFT should be ap­proached sep­a­rately and shown as a sep­a­rate line item: “It shouldn’t be in place at all, but it is now leg­is­la­tion so there’s not much we can do about it. We strongly en­cour­age all op­er­a­tors to pass on this ad­di­tional cost. No op­er­a­tors I know of have had any push­back on this.”

He em­pha­sises that op­er­a­tors not only need to re­cover the ac­tual

RFT costs, but also as­so­ci­ated costs like ex­tra ad­min.

Of course, he’s not naïve about the ef­fects: “Those op­er­at­ing only in Auck­land could be at a dis­ad­van­tage…. Any­body op­er­at­ing across re­gional bound­aries will be en­cour­ag­ing their driv­ers to fill up out­side the re­gion – and there’s noth­ing wrong with that since they are us­ing those roads.”

Ken Shirley shares Aitken’s view – de­scrib­ing the RFT as “an ab­so­lute po­lit­i­cal sham,” com­ing on top of other in­creases.

“It’s in­ef­fi­cient and will go straight to the bot­tom line and pric­ing of all goods. Peo­ple are look­ing to avoid it where they can.”

He adds that it is masked by re­gional vari­a­tions in petrol and diesel pric­ing around the coun­try and vari­a­tions within Auck­land it­self.

The re­sult? “Op­er­a­tors have no choice but to build it into a FAF, which has now be­come more im­por­tant than ever.”

With Auck­land set­ting the prece­dent for other coun­cils to in­tro­duce RFTs in the near fu­ture it doesn’t just af­fect Auck­land­based car­ri­ers, but is far-reach­ing.

Aitken says wryly that fuel stops out­side the Auck­land re­gional bound­ary are do­ing well – but says it’s no joke for op­er­a­tors as “they need to be look­ing at these changes and cov­er­ing their costs – pass­ing them on and mak­ing a mar­gin.”

Be­tween FAFs, RFTs, ex­cise du­ties and road user charges – is it all be­com­ing un­ten­able? David Aitken is clear about the an­swer: “Only if you can’t pass it on. Then it be­comes too much. Make sure it’s in­cluded in your cost­ing to cover for fluctuating prices.”

In ask­ing nu­mer­ous op­er­a­tors for com­ment, it be­comes ob­vi­ous that FAFs can be a touchy sub­ject in the in­dus­try – with some “not will­ing to dis­cuss our con­fi­den­tial ar­range­ments,” oth­ers sim­ply not re­turn­ing calls.

Of those who do talk openly about the sit­u­a­tion, ap­proaches to FAFs dif­fer. Jamie El­li­son, owner of El­li­son Cartage in the Wairarapa, isn’t af­fected by the Auck­land RFT – but has been mon­i­tor­ing his oper­a­tion’s fuel costs and reck­ons that in re­cent months “it has crept up con­sid­er­ably. We haven’t got a spe­cific FAF equa­tion, but I usu­ally work out the per­cent­age that fuel has gone up by and we just pass it on through the rates on jobs.

“We do it this way as if you have a FAF and fuel comes down, peo­ple would come back at you about want­ing their rates to come down too.”

He ex­plains that com­pli­ance rates must be ac­counted for: “We can’t ab­sorb it. It’s got to the point now that our com­pli­ance rates are es­ca­lat­ing all the time. We’re pro­vid­ing a good ser­vice, putting good gear on the road and if clients don’t ac­cept a bit of a rise, that would be un­fair too.

“So we don’t have a FAF as such. Just take a per­cent­age of what the run­ning costs have gone up by in the past six months or so and build it into our rates.”

A spokesper­son for an­other truck­ing com­pany (that prefers to re­main anony­mous) says it doesn’t ad­just its fees – as it prefers to re­main com­pet­i­tive. Asked if that ap­proach is sus­tain­able, the spokesper­son con­cedes that the ap­proach could be­come a prob­lem down the line: “We’ll ab­sorb it for a while to re­main com­pet­i­tive and if we feel we need to ad­just later, we will.”

Auck­land op­er­a­tor Chris Carr says his long-es­tab­lished com­pany, Carr & Haslam, is pass­ing-on the RFT: “We in­clude a FAF as part of the charge, but see the RFT as a tax on Auck­lan­ders – not on trans­port – so we’re sim­ply hand­ing it over.

“It amounts to about a 10% in­crease in costs over­all. No-one in our busi­ness can sus­tain that.” T&D

Auck­land is the rst city where a re­gional fuel tax has been im­posed....but oth­ers seem poised to soon fol­low

“It amounts to about a 10% in­crease in costs over­all. No-one in our busi­ness can sus­tain that”Auck­land truck­ing com­pa­nies op­er­at­ing out­side the Auck­land re­gional fuel tax bound­aries are, of course, able to avoid the higher prices

Newspapers in English

Newspapers from New Zealand

© PressReader. All rights reserved.