Rising Cost of Fuel Takes Toll on Transport Sector

(Transport Intelligence)

Rising fuel prices are having an impact right across the spectrum of transport activity. Companies ranging from road freight operators to airlines are being driven out of business in all major markets throughout the world.

In the UK, for example, the latest freight company to call it a day is Ramage Distribution, a well-known Scottish-based road freight carrier. Last week, management called in accountants KPMG to act as receivers. Some 350 jobs have been lost at depots throughout the country, with just a handful of staff retained to help the company in administration.

The crash of the company comes only months after Ramage reported that its acquisition of Scottish haulier UFD in mid-2007 had “knocked millions off the combined annual overheads of the enlarged operation, almost tripled turnover and left the company primed for expansion in 2008”. Its subsequent problems have been blamed on rising overheads, mainly fuel.

Such problems are not confined to the UK where at least truckers currently don’t have to cope with a major economic slowdown. In the U.S., truckers are faced with a combination of record oil prices and dropping volumes, particularly in the construction/housing industry. Anecdotally, it is the independent truckers which are facing the worst crisis, being unable to pass on the full costs of fuel to their employers. Fuel surcharges are being dropped as competition for the dwindling number of loads gets increasingly intense.

The airline industry is another major victim. U.S. discount air carrier ATA Airlines Inc recently collapsed, blaming high fuel costs although that situation was made worse when FedEx dropped ATA from a military-charter programme it operates for the Department of Defense.

In total, five U.S. airlines have gone bankrupt in the last two weeks. Champion Air, Skybus, ALOHA Air Group and Frontier Air have all entered some form of administration, with credit lines increasingly difficult to maintain. It is not just in the U.S. where airlines have been driven beyond the brink. Last week, Hong Kong-based OASIS went bust.

There is concern that as airlines attempt to raise prices to make up for the increasing cost of fuel, passenger numbers will fall, thus exacerbating the situation and leading to mounting company failures. This will have a knock-on effect in the air cargo market, with reduced capacity inevitably impacting on freight rates.