New Zealand continues to experience a price shock but not a supply shock. 

There has been some good news recently as over the last weeks diesel prices have dropped below $3, after being near $4 a litre. We are starting to see some settling after the initial onset of the conflict in March, with businesses focusing back on delivering their plans, but factoring in volatile fuel pricing for the rest of the year.

Some key indicators:

- Diesel stocks remain stable, with 46.1 days cover, up from 41.3 on Monday. On shore stocks have risen by 5.5 days this week.

- The fuel price has dropped – the NRC discounted price is in the mid- $2.80s, with three drops totalling 27% over the last three weeks.

- However, Brent Crude climbed to $111 a barrel this week due to ongoing uncertainty, which is near peak pricing since the conflict started, suggesting the pump price will continue to bounce around.

- Heavy vehicle kilometres travelled (VKT) remains robust, according to the Ministry of Transport, with diesel volumes staying strong overall, which is a positive sign for the economy.

It is also increasingly clear that New Zealand has a strong fuel supply position. We continue to have the same number of days cover of diesel as we did at the start of the conflict, and robust supplies visible out into late June.

There are reasons to be positive. Our two main suppliers in Asia, Singapore and South Korea, are having success diversifying their sources of feedstock away from the Middle East. The New Zealand Government has done a good job shoring up supply arrangements, where we provide food security in return for fuel supply security. New Zealand is in a strong position: We can afford the current market prices for fuel (not all countries can), and our globally small volumes are easily met by the Asian refineries.

Government leading by example in accepting fuel cost adjustments

An important step this week was the Government announcing it is doing its bit to lead by example in providing for fuel cost adjustments in major contracts. While NZTA has traditionally had fuel price adjustment mechanisms built into its contracts, it is moving to a monthly adjustment, up from the more common quarterly adjustment. This means transport operators can pass through fuel price adjustments more frequently, even in fixed-price contracts, providing some relief to squeezed cashflows.

Following the Government’s lead, it is critical that the large contractors extend the same through the supply chain and allow transport operators to pass through fuel adjustment factors (FAF) to them.

National Road Carriers would also like to see all local councils take the same step as central government. For transport operators using FAF, we recommend viewing Commerce Commission guidance on how to apply it correctly.

Some regulatory relief on the way for transport operators

The Government has been clear it has very limited ability to provide financial support to cushion the price shock and any support that is provided must be targeted, temporary and timely.

What it has been focused on is how to improve road freight productivity by making some rule or regulation changes. NRC has been working with the Government, and we are supportive of any regulatory levers that can be pulled that will give productivity uplifts to operators to offset some of the diesel cost increases.

Road freight options being considered are looking at Vehicle Dimension and Mass (VDAM), or weight and length enhancements.

As always, a tightrope has to be walked between productivity gains that don’t drive accelerated wear to pavement and structures, or compromise safety.

I believe this will limit the ability of the Government to provide any major improvements to VDAM in the short term, but even modest gains can make a significant difference over time.

To help drive a bigger step-change in productivity, NRC is helping to explore longer-term enhancement to VDAM that would make a material difference to productivity but these would likely take until at least next year to work through the system.

Proposals for nearer-term rule enhancements designed to provide regulatory relief for road freight have gone from the Ministry of 

Transport to Cabinet for approval, and we are expecting to hear the outcome next week.

Justin Tighe-Umbers, Chief Executive, National Road Carriers Assn