This year has without a doubt, seen the most volitile oil prices for several decades. After reaching new record high prices earlier this spring, we close the year with one of the lowest oil prices for many years.
The question that springs to mind is why the price went so high in the first place.
Traditional Economics states that the markets set a price at the point where supply equals demand, if supply falls or demand increases then the price rises, and vice versa.
So what really happened in the early summer of this year, what were the real true physical factors driving the price increases, or was it purely an example of investor speculation.
It we get back in out time machines and travel back a year, then what the forecasters saw for oil consumption was a continued growing demand, both nothing particularly out of the ordinary.
What really happened in 2008?
There were no invasions of oil producing countries, China continued at the begining of the year to increase it’s demand, but again, nothing that wasn’t particularly unforseeable, the US dollar was strong, but again, it had been for most of the year before. There was continued political and military uncertainty in Nigeria, but again, nothing drastically different from that of previous years, or what was anticipated.
All in all, in was expected that global oil production would increase by 2% to cope with 2008’s anticipated demand.
So, if we take the hard and fast, true physical reasons for oil price volatility, with hindsight, there doesn’t seem to be a great deal there. Which leaves us with the intangilbe reasons, the suspicions & worries of the analysts, and the financial market traders, the doom & gloom dramatic predictions of the world’s media, desperate to find something to grab headlines and viewers, and then speculators, the forward traders & the short traders who place their bets and see where the dice fall.
Hindsight is a wonderfull thing, but sitting here at the end of a turbulent year, I really wonder just how much of the whole “oil crisis” was down to speculators making money, and how long the rest of the world will be paying for it.
Same day and next day couriers price their jobs usually based on a set price per mile. At present in the UK, this price is around £1 to £1.50 per mile, depending on the company that you use, and the load in question.
Many customers look at this and think that this is an extortionate rate, particularly when you consider that many customers are comparing the courier price with the price of a next day parcel service.
So what makes up this price, apart from the obvious fuel etc, what other costs do couriers need to consider when setting their prices.
Fuel. We’ll start with the obvious one. This works out at around 102p per litre, for diesel vehicles with engine capacities over 2000cc. If you have a well maintained van, the 30 mpg should be achievable. Making the cost per mile around 15-16p per mile.
Depreciation. Say a new van costs around £25,000, and in 3 years it has a resale value of around £10,000 then that’s £15,000 of depreciation that needs to be included in the costings.
Financing Charges. Very few van drivers or couriers can afford to pay for a new van in cash, and so that means that there is either bank interest, loan interest, or HP/Finance costs to be borne. These will average around £4,500 depending obviously on the deals and rates around at the time. Currently, these are very thin on the ground.
Tyres, Parts, Servicing. If you’ve got a brand new van, then you should be lucky and get away with around £600 a year on servicing and tyres. If the vehicle is older then these costs are going to be increased.
Insurance. Van insurance is not cheap. Van drivers often pay higher premiums due to the “higher risk” they are exposed to by the number of miles that they drive every year. The average car driver drives 12,000 miles per year, a normal courier will be looking at least quadruple that, maybe even upwards of 90,000 miles per year. Couriers van insurance also carrier premiums for goods in transit insurance, to ensure that the products that they carry for their customers are properly insured against loss or damage.
RFT & Breakdown insurances. A necessary, unavoidable expense for all road users. And if you earn your living by driving, you need to ensure that you have cover to keep your vehicle on the road.
If you add up all of these expenses, and work out a cost per mile, it comes in around 83p. But there are two very important cost that isn’t included in the list. And that’s time. The time of the driver, ie his wages, and the margin that the company/business requires to contribute towards the businesses fixed costs and overheads (for example telephone, office staff, premises, bank charges etc).
So, when the courier is asking £1 a mile, it isn’t really that expensive, it’s simply a fair reflection of the costs involved, and unfortunatley many people (couriers as well as customers) have a tendencey to underestimate those costs.
Volvo and Scandia, two of the largest suppliers of trucks, have seen orders plummet from over 40,000 to just over 115 in Europe. Despite there being nearly 20,000 orders, cancellations and adjustments to previous orders have effectively wiped this out to only a small gain.
Volvo cited a number of reasons, including the economic slowdown, increased costs of raw materials, and new environmental legislation.
“In Europe, customers are continuing to adopt a wait-and-see attitude to the ordering of new vehicles and equipment,” Johansson said. “Moreover, they have increasingly opted to cancel already placed orders. For our part, we have made sure to diligently go through and cleanse out orders in order to secure the quality in our order books.”
The early months of this summer saw record diesel prices, with prices reaching £1.50 per litre. The HGV trucks cover between 8 and 10 miles per gallon, therefore price increases of up to 50% mean that operators have to question every choice that they make with regard to their vehicle base.
This is a very real example of how changes in fuel prices can totally influence companies decisions to expand, grow and capital expenditure spend. In Fantasy Couriers, players will need to take account of the these real and frequently changing fuel prices. When the price of oil goes up, players margins are going to get squeezed, so it is vital that players are going to need to pay particular attention to their pricing, monitor closely their costs, and consider carefully plans to purchase new vehicles in the current ecominc climate.
Teaching Van Drivers New Driving Techniques could save their company’s money, even the smallest saving on each van through fuel-efficient methods will have a beneficial impact on the company. to stay in business. Alistair Patterson from Simply Clearances has vans traveling all over the UK every week, he has found that their fuel costs have been taking up more and more of their profits, which made them examine how they can make savings.
Mr Patterson said “Leaving about 15 minutes earlier for each job means that we can reduce the average travelling speed from 70mph to 60mph, this has increased the mileage that we get from a tank of fuel from 480 kilometres to around 600 kilometres. I was aware that savings would be made, but even I was surprised about the extend of these, i expected to get an extra 50km a tank, not double that!”
Industry experts say that the surprising large savings are due to a number of factors which tend to arise out of a slower average speed, there is a lot less accelerate/brake, and this contributes a lot to saving fuel. And the slower average speed tends to mean a generally calmer attitude which helps in spotting hazards ahead and more predictive instead of reactive driving.
Top tips for saving fuel are;
Plan to leave your depots a little bit earlier each day for your destinations, this should help you reduce your speed, saving you fuel, and will also help you feel more relaxed too. Don’t forget that there is also the speeding tickets to consider and fines, if you’re driving at steady speeds, particularly on the motorways, then you don’t even need to worry about these.
Avoid harsh acceleration and braking, this helps to reduce wear and tear, and it saves the fuel dump every time you brake & accelerate.
Look forward, read the road and the traffic, plan for hazards and drive for the conditions. This should help to reduce stop/start driving, thereby reducing fuel consumption and making you a safer driver.
Remove all the clutter from your van that you dont need, this should help reduce fuel consumption. You will be surprised just how much stuff you carry around “just in case” and then never use.
Remove any items that may affect your aerodynamics, roof rack or top boxes they will only reduce your efficiency of your van. Be aware of the drag of a trailer, plan ahead and only use these items when you need them, and remove them as soon as possible when you’ve finished with them.
Making a living as a courier can be a tricky business, so anything that can benefit your company must be a good thing, even the smallest saving is worth having.
Fantasy Couriers game is almost ready to play and it should help you identify new ideas with savings and your company profits. http://www.fantasycouriers.com
We finally see a supermarket war has broken out, and the result is lower petrol pump prices, finally back below that £1 a litre mark.
The thing is, the price of a barrel of oil has fallen form $150 to $80 but we’re still only slowly seeing 1p – 3p reductions working their way through to the pumps. It’s also very interesting to note that it’s not the oil companies launching the price cuts, but instead the supermarkets, shaming the oil companies into following suit.
It has been said that it can take up to 6 weeks for a reduction in a barrel of crude to work it’s way through to the petrol pump price. However, increases in the price of crude seem to have an immediate, sameday, increase in our fuel bills.
Do we have a case of the oil companies wanting to have it both ways? Or is there any underlying commercial reason that the price cuts have been so slow to work their way through to the consumers. Some my cite the financial crises, unstable markets, fuel companies being reluctant to pass on cuts incase the next week they need to increase the prices again, and all the bad PR that would bring with it.
Or is it simply the case that the fuel companies will charge what the markets will bear, and that during the last few weeks consumers, the media and everyone else has taken their eyes off the price of fuel, and have been watching the FTSE instead, and so the oil companies have simply sat quietly by and taken advantage of a couple of weeks of higher margins.
If this is the case, is it wrong? Are we right to expect the oil companies to pass on the reduction in the price of crude, after all they are all commercial companies there to make a profit. They know that there are lean times coming and that now is not a time for a low margin/loss making price war. After all, many of the banks failed to pass on the government’s required 1/2 % interest rate cut onto new borrowers, choosing instead to keep it and use that to give themselves a bit of a cushion and to make a bit of a profit to cover those great big losses.
The price cut does however co-incide with the Prime Minsters’s call last week for the oil companies to cut the price of fuel. It seems that someone is still keeping a close eye on them.
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