The math behind Transport fuel levy

May 13, 2016

 

The fuel levy myth

There has been a lot of conjecture recently; brought upon by some of the lowest fuel prices we have seen for many years, where transport companies are not passing on the value gained from cheaper fuel prices to their clients by maintaining to keep their fuel levies at the same levels as they were at the start of 2015. 

 

Is this a lack of transparency on the transport company’s side disclosing the drivers behind price changes, or lack of education on the consumer side?

A lack of transparency in any industry damages trust in relationships. 

But knowledge of the fuel levy concept in the wider community is minimal as many customers and the general public have not been educated on the levy purpose and the factors driving the calculation.

Possibly a bit of both?

 

So what expectations should consumers hold? 

 

Detailed fuel pricing analysis has shown that a 5 cent per litre (cpl) increase in fuel cost equates to a 1.55% increase in the cost of completing the transport component of a job.  Our current freight rates are structured on a diesel fuel price of $1.00/litre or 100 cents per litre.  Therefore any fuel price increase above 100cpl would require a 1.55% adjustment, above 105cpl a further 1.55% adjustment, above 110cpl a further 1.55% adjustment and so on (as per Fuel Levy Table Template below).

 

Fuel Levy Table Template

 

 

 

 

When fuel prices are at $1.00/litre, a transporters fuel levy is 0%.  Let’s explore the formula in greater detail for when diesel fuel is other then $1.00/litre.

 

Fuel levy =             Current fuel price - Base fuel price of $1.00

                                Base fuel price of $1.00 x Base fuel rate30%

Where:

  1. Current fuel price = transport company main fuelling location advertised diesel price at a point in time

  2. Base Fuel price = $1.00

  3. Base fuel rate = 30% (this is the operating cost component of fuel on a transport company total cost base)

 

Fuel pricing fluctuates several times per week.  In a capital intensive industry such as transport, fuel costs account for up to 30% of businesses operating expenses.  Given regular price changes, a fuel levy policy provides clarification to our existing systems in place, ensures sustainable financial viability within Clarkson Freightlines whilst maintaining and upholding our professional service levels without compromise.

 

To assist with transparency and client education, Clarkson Freightlines fuel levy is calculated on the 25th of each month and applied to the following month.  Each fuel levy update is published on our website – www.clarksonfreightlines.com.au at the start of each month.

 

We trust the above explanation provides clarity around the Fuel Levy Topic allowing the general public and consumer to expect transparency and accountability from their transport partners improving industry performance across the board.

 

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