Fuel security becomes critical for Brisbane’s industrial sector
South East Queensland may be far from the Persian Gulf, but Australia’s reliance on imported energy has pushed the impact of the Middle East conflict onto local businesses ranging from trucking firms to metalworkers, and even farmers.
Business owners across the spectrum of industries are awaiting commitments in the Federal Budget to address the supply issues caused by the ongoing war in Iran and a path to fuel sovereignty in Australia under the future National Fuel Security Plan.
Transport, manufacturing, construction, mining and agriculture producers have been hit hard by heightened diesel prices and supply issues arising from the closure of the Strait of Hormuz. There is a host of secondary industries – everything from supermarkets to waste collection contractors – that have also been impacted.
What has been the impact of the Middle East conflict on Brisbane businesses?
Bromley has heard firsthand from tenants about blowouts in operational costs through higher diesel prices, higher material costs, and supply delays.
Transport operators in prime logistics precincts have had to absorb diesel prices which topped well over 300c/litre after the Strait closed. The retail price has now come down – Brisbane’s average on 22 April was 279.9c/litre – through the Federal Government’s reduction in the fuel excise tax and increased supply. However, prices are still 56% higher than the 179.9c/litre paid at the bowser before the conflict broke-out.
Fuel can ordinarily account for more than 30% of operating costs for trucking businesses, shortening the margins of transporters. The diesel increases can add thousands of dollars – potentially, tens of thousands – to businesses, dependent on their scale and contracts. Even with the Federal Government putting a temporary hold on the heavy vehicle road user charge these imposts affect profitability and plans for fleet expansions or lease renewals.
The construction and trade sectors are experiencing a parallel cost shock. Builders are dealing with higher diesel costs and rising input prices for materials including plastics, piping and bitumen. PVC pipe prices alone have risen by as much as 30% and there’s no confirmation of when the growth in broader construction costs will plateau. For a small commercial builder leasing a warehouse, this translates to tighter project margins and possibly delayed works.
Manufacturers are dealing with increased shipping and input costs. This is forcing occupiers to either pass costs onto customers (where possible) or absorb them, reducing cash flow.
Farmers are also navigating a two-pronged challenge, with fertiliser costs – supply has also been disrupted by the conflict – compounding the pressure of diesel prices. A trip to the supermarket or weekend farmers markets shows how the costs at the farmgate are influencing the price of a basket of veges.
What has been the Government’s response and what’s to come?
Ahead of the May Budget, the Australian Government has moved to stabilise fuel supply by drawing on strategic reserves and securing imports from key partners. It has released up to 762 million litres from domestic and offshore reserves, including stocks from the US, Singapore, and South Korea.
Looking ahead, the Government is expanding minimum stockholding requirements, investing in domestic storage, and refining capacity.
On the other side of the floor in the House of Representatives, the Coalition’s core fuel security policy is predicated on an $800 million Australian Fuel Security Facility, designed to co-invest with industry in storage and reserves.
Fuel sovereignty is critical to SEQ
In South East Queensland, industrial hubs have been underpinned by strong population growth and logistics demand.
The Iran conflict has not reduced demand, but it has fundamentally altered how businesses are operating. Tenants are more cautious, particularly SMEs. They are delaying CAPEX commitments and reviewing their footprints to improve cash flow in the wake of higher energy costs, which contributed to a large uptick in the monthly CPI increase in March.
Until long-term fuel sovereignty is secured, fuel volatility will remain a structural business risk.
Bromley joins tenants and investors in calling for the Government to provide a long-term, sustainable plan that insulates our markets from global shocks by supporting greater domestic production.