Peak transport season arrives with the fuel bill attached

For road freight operators, the run from now to Christmas is the busiest stretch of the year. This year it is also the most expensive, and the two are arriving at exactly the same time.

The ABS confirmed the scale of it this week. Automotive fuel rose 23.6% over the year to September and 9.4% in September alone. Transport was the fastest-rising CPI group at 8.7%. The ACCC put five-city average diesel at 278.5 cents a litre in the week to 14 October, and in early October NatRoad reported diesel approaching three dollars a litre in parts of the country.

Peak demand and peak cost landing together is not bad luck. It is the structure of the industry.

More work means more fuel, more driver hours, more tolls and more maintenance, all of it funded before a single invoice is paid. That turns capacity into a cash question rather than a margin question. Operators decline profitable work every peak season because they cannot fund the gap between doing it and being paid for it.

The second effect is contractual. Operators with automatic fuel levies reprice as the index moves. Those on annual rate reviews carry the full increase until review date. Same route, same fuel bill, very different year.

Fuel is bought daily. Freight is invoiced monthly, on 30, 60 or sometimes 90 day terms.

Peak season widens the gap from both ends. More fuel goes out the door, more receivables sit outstanding, and customer payment runs slow over the Christmas shutdown period just as the costs peak.

The dangerous part of peak season is not the cost, it is the volume.

“Taking on more work means funding more fuel, more wages and more tolls before any of it converts to cash,” says Nigel. “That is when a profitable business runs out of room.”

There is a second-order effect that does not appear in any price index. Fuel is usually bought on supplier credit, and that credit is extended on tight terms. A payment that dishonours can cost an operator those terms outright.

Nigel warns that if you miss one fuel payment, you can be on stop credit the same week.

“Now you are buying fuel with cash upfront, which is the one thing a business short on cash cannot do," he says "And it can be a very slippery slide from there.”

That is the real risk inside the timing gap. Not that cash gets tight, but that getting tight once can remove the credit the operation was running on

Road freight carries around 80 per cent of Australia’s domestic freight, which is why a diesel price is never only a trucking story. The RBA noted in its September statement that higher fuel prices had been partially passed through to the prices of other goods and services, and that its business liaison found firms were either raising prices or looking to.

The businesses downstream feel it in sequence. Retailers building Christmas stock pay more to move it in the same quarter they fund inventory. Food manufacturers and grocery suppliers wear higher freight on thin margins. Grain growers moving a large harvest face higher cartage. Construction contractors pay more for materials delivery.

“In each case the increase arrives embedded in a supplier invoice rather than as a line item,” states Nigel. “This makes it harder to see, harder to argue with and harder to plan around.”

The structural problem is a timing mismatch, not a profitability one. A freight business can be winning work, holding margin and still run short of cash, because the fuel is paid for weeks before the invoice that covers it.

That is what receivables finance addresses. Octet’s Debtor Finance advances up to 85% of the value of unpaid invoices, typically within 24 hours, so the cash already earned in the ledger funds the next tank rather than sitting in a customer’s payment run. Because the facility moves with invoicing, it grows as the operator takes on more work rather than capping out when the business needs it most.

“In WA the distances magnify everything,” notes Nigel. “What we are really doing is releasing cash the operator has already earned, so the fuel bill is not funded out of their own pocket while they wait to be paid.”

Peak season rewards the operators who can say yes. The ones who can are usually not the ones with the lowest costs. They are the ones who are not waiting on their customers to fund the work.