A fuel adjustment factor has been described as a surcharge, added on top of a base freight rate, which can go up or down depending on fuel prices.
“Fuel is one of Interislander’s largest operating costs and sustained increases in marine fuel prices are creating material cost pressures on operations,” Wilson said.
KiwiRail says fuel is one of its Interislander service’s largest operating costs. Photo / Samuel Rillstone, RNZ
“Like other transport operators, KiwiRail does not receive fuel subsidies, so prolonged periods of elevated fuel prices must be actively managed to ensure services remain financially sustainable over time.”
Transporting NZ chief executive Dom Kalasih said the fee would be imposed on companies transporting a huge variety of goods.
“That could be anything from furniture, some grocery stuff, could be some livestock – basically every commercial truck [that] travels from north to south, and vice versa, will be paying this additional fee.”
Kalasih said it’s likely transport companies will have to pass these costs on to businesses, who will in turn pass that on to consumers.
“More than likely they’ll be paying higher rates for that transport than they had originally intended, so then they will have to make the business decision, so that they can remain financially sustainable, as to how they manage that increased cost.
“Ultimately, I suspect, all of this stuff, will flow to a consumer.”
Kalasih said just how much Interislander’s increased fuel charge will affect New Zealanders depends on the product being transported.
Many transport companies have been imposing their own fuel surcharges through fuel adjustment factors because of the soaring fuel prices, Kalasih said.
New Zealand Shipping Federation executive director John Harbord said the ferries had been hit by significant diesel cost increases.
“The Cook Strait ferries, at the moment, are spending approximately about $600,000 more a week on diesel than they were previously, and so you know they can’t absorb that amount of cost increase themselves.”
‘Completely standard’
KiwiRail and Peters, the minister, declined to be interviewed for this story. However, in a statement, Peters said Interislander shouldn’t be expected to absorb fuel price increases.
“There isn’t a trucking firm in the country that would be prepared to absorb fuel prices increasing, so why would the Interislander be expected to do that?”
Winston Peters. Photo / Mark Mitchell
He said Interislander was taking steps to keep costs low, but no transport business could control fuel prices, which was why fuel adjustment factors existed.
“It is completely standard in the transport industry to adjust rates based on fuel prices – so standard, in fact, that Bluebridge adjusted theirs a few weeks ago and Interislander is following suit.
“We were briefed on the planned increase for the month of May and were assured that these increases are tied to the freight customer share of Interislander’s fuel operating costs.
KiwiRail’s Wilson said fuel prices remained “volatile”, KiwiRail recognised it was implementing a large monthly increase and it would continue to monitor fuel prices.
She said commercial customers had been told last Thursday of the increase. The adjustment was being set monthly and could go up or down, depending on fuel price changes – though when prices fall, there could be a lag before that flows through into prices.
Wilson said at this stage, KiwiRail was not making more regular price increases.
“KiwiRail is monitoring the situation and making every effort to continue to absorb cost increases across a monthly period to provide certainty for customers.”
International surcharges could cause ‘massive’ cost
Harbord, the Shipping Federation boss, said Maersk’s 27% fuel surcharge would also result in increased costs for businesses and consumers.
He said if the shipping giant was charging hundreds of extra dollars on each container it moved in and out of New Zealand, that would put pressure on both importers and exporters.
“If you think about the implications of that, in that 99% of New Zealand’s import and exports are moved by ship, that is a massive increased cost on the New Zealand economy.”
Lisa Coleman, director at New Zealand freight company Rocket Freight, said fuel surcharges for international shipping were changing rapidly because of the uncertainty of global fuel prices.
She said all international shipping companies were imposing extra fuel costs, through different mechanisms, and under different names.
Usually, rates are set every few months but now they are changing every couple of weeks.
Coleman said companies – even if they had allocated fuel out months in advance or were in transit – were trying to safeguard themselves if they couldn’t get the product, or the cost increased.
“I absolutely think it’s going to keep going up, it’s going to keep going up until it becomes unsustainable – I am very prepared to see covid level freight costs, which was ten times the cost of normal freight.”
Coleman said ultimately this meant higher prices for products on the shelves.
She said Australia was seeing 50% fuel surcharges added to local transport services from international shipping companies.
Finance Minister Nicola Willis said the Government had been monitoring global shipping costs.
Willis said the impact would be different, depending on the exporter.
“This is what we are talking about when we talk about the secondary impacts that come through for overall inflation – it’s not just how much the petrol price increases, but it’s how this conflict in the Middle East puts price pressure on across the board, that eventually gets reflected in our economy.”