APPENDIX 1
Memorandum submitted by The Post Office
INTRODUCTION
The Post Office has one of the largest transport
networks in the UK, therefore Motor Fuel Taxation is an issue
which impacts enormously on our business. Our comments are not
of a confidential nature.
For many years, The Post Office, like all other
businesses, has been subject to increasing fuel prices. This has
been due primarily to the introduction of the Fuel Duty Escalator
by the last Conservative Government as a policy tool designed
to increase the cost of fuel annually above the rate of inflation.
Whilst we recognise the environmental aims behind this policy
decision, the increasing cost of fuel has been aggravated by a
steady increase in the price of oil on the world market, cumulating
in the recent 10 year highs. The net effect of this has been a
growing dissatisfaction with the cost of fuel, which was demonstrated
by the fuel blockages witnessed across the UK and throughout Europe
during September.
Against a backdrop of increased media attention
to the effects of high fuel prices, this response deals with the
actual impact on The Post Office, based on facts and informed
views. Indeed, we feel that as an organisation The Post Office
is uniquely placed to comment on the impact of fuel prices, based
on the following key facts:
— a total road fleet of 36,000 vehicles;
— over 640 million road miles per annum;
— some 150 million litres consumed
annually;
— 91 flights each night, spanning 26
airports;
— 59 dedicated trains operating daily.
These figures underline the fact that The Post
Office's transport operation is one of the largest in the UK,
and probably throughout Europe, putting the organisation in a
position to offer informed views on all transport related issues.
COMMENTS
There is little doubt the transport industry
operating from bases in the UK is disadvantaged compared with
hauliers based on the continent. Fuel taxation is considerably
higher in the UK than in all other European countries, and the
net result of this is that European based operators are able to
fill their tanks in mainland Europe at a lower rate than their
UK counterparts. Therefore, when these European hauliers head
to the UK, they are able to under-cut UK based hauliers as a direct
result of their lower operating costs. This distortion in fuel
duty across the European Union is resulting in UK hauliers losing
work to EU based companies, and the situation is aggravated by
the current strength of the pound, which is bringing increasing
quantities of imported goods into the country. This net flow of
goods inward is increasing the number of EU hauliers entering
the country, and these hauliers are returning with "back
loads" at lower rates than can be achieved by UK based operators.
As a direct result of the increased competition
from Europe, there is strong evidence that many transport companies
are struggling to survive, and many are going out of business.
So great is the threat, that several UK hauliers are now embarking
on a policy of "flagging out". This involves registering
the business on the continent and operating trucks out of that
country. Apart from the fuel differentiation, hauliers who have
"flagged out" also enjoy significantly cheaper levels
of Vehicle Excise Duty (VED) and, since the trucks have to return
to their country of registration only a limited number of times
per year, they are free to head to the UK and compete for business
with lower overheads and consequent ability to undercut domestic
hauliers.
Whilst The Post Office has not yet taken the
opportunity to "flag out" any of its fleet, we have
been significantly affected by the economic advantages to firms
operating a fleet in mainland Europe. For example, as The Post
Office has expanded across Europe through a series of mergers
and acquisitions, we have necessarily increased our transport
links between the UK and various European countries. However,
as a direct result of high fuel costs in the UK, all of these
transport legs are currently operated by European hauliers, who
are able to offer lower rates than either UK companies or even
what could be achieved by our in-house transport fleet.
Recognising the huge cost advantages to be derived
from sourcing fuel with lower percentage of duty, we currently
take every opportunity to source fuel from outside the UK. Perhaps
the best example of this is our instruction for Northern Ireland
based vehicles to draw fuel in Eire, despite the fact that this
often means vehicles doing considerable extra mileage. Furthermore,
for the trunk services which we operate into Ireland, we request
that drivers fill their tanks before commencing the return journey,
and we also request Transport Managers rotate their fleet to ensure
that as many vehicles as possible have the opportunity to draw
fuel in Ireland in any given week.
We consider the high cost of fuel to be such
a significant burden on the overall profitability of our organisation
that we invest considerable amounts, in terms of both capital
costs and management time, in the evaluation of alternative fuels
and the adoption of other fuel saving measures. For example, we
have been actively involved in the evaluation of LPG and CNG fuelled
vehicles, and have introduced a comprehensive defensive driving
training programme. Furthermore, we have extensively introduced
the use of double-deck trailers, and have embarked on an ongoing
long term evaluation of "piggyback" inter-modal transport.
However, despite our best efforts at evaluating
and adopting alternative transport modes, we are ultimately undermined
by the lack of viable alternatives. Whilst The Post Office currently
makes extensive operational use of rail services on a daily basis,
we feel that we are unable to increase our use of rail because
of ongoing reliability problems and limitations of rail access
in certain geographical areas. This lack of a viable alternative
has meant that we have to rely on a huge road-based transport
operation, and thereby pay the high fuel costs.
Given that no business can continue to absorb
an increasing overhead as a result of rising fuel costs, this
additional financial burden has been passed directly onto our
customers. Bearing in mind that all other UK operators are in
the same situation, this general increase in costs must be leading
to inflationary pressures in the economy, thus further damaging
the competitiveness of UK companies who are already struggling
to compete on the European and global stage due to the high value
of the pound.
Allied to these economic pressures, we are also
concerned about the safety of road transport within the UK. As
a direct result of lower fuel duty across Europe, this submission
has already noted how more and more European based operators are
heading to the UK. However, despite the strict regulations and
high professional standards which apply to UK regulated companies,
we are concerned about the safety of some of the European registered
trucks which run on UK roads. This is particularly the case with
vehicles from eastern European countries and those from the former
Soviet Union.
We also currently take advantage of the lower
levels of VED which are offered for "green trucks",
ie those vehicles which meet the latest Euro III emissions standards.
We consider such financial incentives to be an effective tool
to reward responsible operators. We would discourage any move
to reduce fuel duty and consequently increase the rate of VED.
SUMMARY
Despite all the concerns which have been raised
in this paper, we do recognise the environmental benefits to be
achieved from a reduction in the consumption of fossil fuels.
However, given that congestion on our roads continues to grow
at a steady rate, and that a gridlock situation is predicted in
the future unless demand patterns for transport are changed, it
would appear that increasing the price of fuel in isolation has
failed to deliver any of the environmental benefits which the
Government desires. This suggests that the average motorist has
a high degree of price elasticity when it comes to car use and
is prepared to pay spiralling costs for the benefit of using his
car. Given that the number of LGV vehicles has actually fallen
in recent years, whilst the level of car ownership has continued
to increase, we suggest that a differentiation needs to be made
between car users and the haulage industry.
As far as car users are concerned, the Government
should continue to pursue its aim of reducing car usage, which
can be achieved by fuel duty, urban access charging and road tolling,
whilst at the same time investing in the provision of viable alternatives
such as Light Rapid Transit schemes, bus priority measures, and
upgrades of key rail arteries. However, there must be a realisation
that road freight transport is crucial to the functioning of the
interdependent society which exists today. The point of demand
for nearly all goods are geographically dispersed from the point
of production, and no other mode of transport, other than road,
can achieve the degree of market penetration demanded by the retail
multiples, high street chains and other outlets which need to
be frequently served in our consumer dominated society.
With this in mind, we advocate the introduction
of an essential user rebate for LGV vehicles, particularly with
fuel duty tax. Whilst recognising that a general exemption may
not be appropriate, we would welcome an essential user rebate
as an integral part of an integrated transport strategy which
aims to exploit the advantages of individual modes, whilst recognising
that road transport will almost inevitably be involved in any
end-to-end logistical solution.
October 2000
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