FAF to the fore
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