The real cost of a barrel of oil

OVER the next week, one of the world’s last remaining untapped sources of oil and gas will be greedily fought over by five of the most powerful oil producing nations.

The event, held in Greenland, will see Denmark, Russia, Canada, Norway and the US discuss how the Arctic seabed should be divided up. It’s an explosive issue made all the more political by Russia’s planting of a flag in neutral waters in an audacious sea bed stunt.

Environmentalists have long despaired the advent of carbon fuel extraction from the Arctic’s pristine waters. And until now, their fears have been more or less supported by armchair activists across the world. But as the price for a barrel of the black stuff spirals beyond speculation the ecological threat is quickly becoming a rear view mirror concern because despite our best efforts to be greener and our commitment to renewable energies we are still slaves to oil.

Until earlier this year the world’s reliance on oil meant little to the consumer. Yes, it made filling up the car or paying energy bills more expensive but life pretty much went on as it had before. But yesterday’s march on parliament and motorway blockade by members of the Road Haulage Association (RHA) signalled a new era of revolt and alleged government U-turns on green taxes and vehicle duty.

The seriousness of the situation has got Gordon Brown dashing up to Scotland to meet with oil giants to see how government can help speed up production. It’s predicted to be top of the agenda for the next G8 meeting ousting terrorism from pole position.

The RHA’s plea to consider implementing a fuel duty regulator that would trigger lower fuel duties as oil prices increase is not just a sign of frustration but desperation. A year ago, a litre of diesel cost 76.5p (ex VAT) whereas today it’s around 120p per litre and climbing daily. That means running a typical articulated truck now costs £49,000 a year to run compared to £35,000 in 2007. With margins a meagre 3% and fuel representing more than 40% of costs times are getting extremely tight for haulage operators large and small.

And it’s not just the Government that’s being accused of “highway robbery” by the RHA. The haulage association wants customers to understand that its members can no longer absorb fuel increases. Whether they like it or not, they will have to pass the cost on to the consumer.

“It is absolutely essential that haulage buyers accept substantial and inflationary increases,” warns an RHA spokesman.

“We now have firm evidence that in this period of unprecedented cost volatility some haulage buyers have refused to give justified and essential increases because they haven’t budgeted to do so.

“We believe that such actions are short-sighted and will damage not only their hauliers but also the availability of essential cost-effective haulage services.”

No change on either front could see the collapse of hundreds of haulage firms across the country. Several in Yorkshire have already called in the administrators including E Pawson and Son – one of the region’s largest logistics firms. Around 110 out of 180 have lost their jobs ending a long and healthy career in haulage, which has spanned some four generations.

According to Margaret Edmund, Yorkshire area manager for the RHA more are destined to share the same fate.

“This situation has been going on for two to three years now but has reached a climax,” she says.

“It’s not helped by the fact there are so many foreign wagons on the road, and even though their fuel prices have increased, it’s still some way behind the UK.

“We need the Government to understand the impact this is having on the industry and just what that means. If the haulage industry collapses no food will be delivered, clothes or white goods. It’s very serious.”

Edmund also has some stern words for smaller hauliers however, warning them that charging “ridiculous” ad hoc prices just to secure work is putting other hauliers at risk.

“It’s a vicious circle. Customers will tell a haulier that they’re too expensive and that there are plenty of others who will do the job cheaper, he’ll then cut his prices in desperation but in the meantime fuel prices increase,” she explains.

“We get lots of members asking for help and all we can do is advise them to work out their costs on a daily basis. But for a small independent haulier that’s an impossible ask. They’re either out working and when they’re home maintaining the vehicle as required by law. When do they have the time to sit down and work out the costs?”

Although Edmund is displeased with the Government’s lack of action, she also points the finger of blame at speculators, whom she blames for the ever-rising price of oil.

“They must be stopped,” she suggests.

It’s not just British hauliers that rising fuel prices are affecting. French fishermen are on strike, blockading ferry ports (nothing unusual you may think about that) and generally making their unhappiness public. Spain too is witnessing protests and complaints over the cost of fuel.

The situation is truly endemic and one whose effects are starting to trickle down to other industry sectors. According to the latest CBI Services Sector report, consumer services firms such as hotels, bars and restaurants, cinemas, hairdressers and gyms have endured a worse quarter than feared. Business volumes and values fell at rates not seen since the end of 2001. In the meantime costs have accelerated rapidly and profitability has sunk at a record rate. Firms transporting goods and post saw volumes and values of business fall faster than when the survey began in 1998 with profitability the weakest in eight years.

Ian McCafferty, the CBI’s chief economic adviser says service sector firms are concerned about their business prospects.

“Consumers are reining in spending on leisure, entertainment and eating out while professionals offering services such as accountancy, property and law have seen their profits flatten off as costs continue to grow strongly,” adds McCafferty.

But it seems that when the going gets tough the Brits will still holiday. Travel companies have reported healthy demand despite the cut in household spending. Perhaps even more unexpected is the strong showing being put in by marketing firms even though marketing budgets are usually the first to be cut in harsh economic climates.

So what does the future hold for British business? Certainly the fuel crisis is destined to deepen and common sense solutions will have to be found fast. It could accelerate the development of renewable technologies or witness their abandon. Whatever happens, the fuel crisis has more than rendered the credit crunch as a mere minor economic blip in comparison.