Apr

Fuel price increases 247% above CPI index

2014-04-10 12:29
In the past 15 years, the price of fuel has increased by more than 560% which is equal to an average increase of 13% year on year.

In the past 15 years, the price of fuel has increased by more than 560% which is equal to an average increase of 13% year on year. The average CPI over the same period was 5.25% which means that effectively, fuel increases have surpassed the CPI index by 247%.

This is the finding of Eqstra Fleet Management which has conducted more than 50 detailed fleet reviews in the past six months and has produced a white paper on fuel setting out the challenges facing companies that operate fleets in southern Africa.

“Given these increases, we find that fuel now contributes between 38 to 44% of overall corporate fleet costs, dependent on the fleet mix,” says Murray Price, managing director of Eqstra Fleet Management. “This situation makes it extremely difficult for fleet operators to budget for fuel, which is now the single biggest expense in their fleet.

“We estimate that more than 60 % of companies in South Africa operate vehicle fleets to one degree or another. It has, therefore, become essential that management acquaint themselves with the factors affecting prices so they can effectively manage costs going forward” he adds.

In terms of global supply of crude, the EIA (USA Energy Information Administration) predicts the world petroleum supply will increase by 1.3 million barrels per day in both 2014 and 2015. However, world fuel consumption is anticipated to grow by 1.2 million barrels per day in 2014 and 1.4 million barrels per day in 2015, therefore outstripping supply. However, the supply characteristics could change if non-OPEC countries continue to increase supply capacity.

Crude oil supply is influenced by a number of factors including technology, size of crude oil stockpiles, the cost of providing new wells, unplanned interruptions to production due to war, extreme weather or catastrophe, cartel policies and the global demand for crude which is heavily influenced by seasonal factors in the USA and the sustained growth of the Chinese and Indian economies, with resulting increases in vehicle ownership.

Petrol and diesel consumption, on the other hand, is influenced by the fleet mix – vehicle type and engine size; the ‘vintage profile’ (new vehicles are more fuel efficient); maintenance which can impact between 8 – 12% in consumption; vehicle loading patterns – overloading can increase consumption by as much as 28%; and finally, the demographics of drivers – case studies have shown that driver behaviour alone impacts between 7 and 12% of fuel costs.

Over and above the supply and demand factors, fuel prices are significantly affected by taxation. Since 2007, the fuel tax index has been constantly trending upwards and this is expected to continue. “The Minister of Finance in the March 2014 budget announced a 12c/litre fuel and 8c/litre diesel levy increase effective from 2 April 2014,” says Price.

“We are also expecting a steep increase in carbon taxation during 2014. At present, the average carbon taxation only equates to 1c/km which is hardly a motivator for purchasing more fuel efficient vehicles. Indications in the budget speech are that taxation will be reviewed upwards to motivate better buying behaviour”.

Together these factors make fuel price forecasting highly uncertain.

“When we analyse the yearly lows and highs in actual SA fuel pricing, there has been an actual difference of close on 16% between the lowest and highest prices per annum during the past four years” he says.

“The average fleet vehicle (car) consumes approximately 5 000 litres per annum. At the start of 2013, this would equate to an annual cost of R59 300.  However, at the end of December, the same calculation results in an annual cost of R67 750.” The differential for long haul trucks would, of course, be much higher.

According to Shell SA figures, petrol and diesel are expected to increase by 48 c/l and 54 c/l respectively during the first two quarters of 2014, which equates to a fuel price exceeding R15.50 by the end of 2014 if current trends continue.

“With a predicted 15% increase in fuel for the 2014/15 year, it has become essential for fleet operating companies to ensure that the optimal fleet is being run and to do this they must be stringent in managing driver behaviour and pay close attention to the vehicle fleet mix,” concludes Price.

To read the full White Paper on Fuel Price Increases developed by Eqstra Fleet Management, please click here.

 

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