If you have been on the roads in the last few days, you would have seen the long queues for fuel, as nationwide ‘shortage’ has caused untold havoc for the general public and businesses. Business Leader has looked into what it all means for the economy.
In order to combat the ongoing troubles, yesterday the UK government announced new measures to help further ease supply chain pressures and spikes in localised demand for fuel, including the approval to put on standby a pool of military drivers and extension to specific HGV licences.
British Army tanker drivers will be brought to a state of readiness in order to be deployed if required to deliver fuel to where it is needed most and providing further reassurance that fuel supplies remain strong. The military drivers will now receive specialised training before deploying, enabling them to seamlessly work with industry to address the supply chain pressures.
What have the government said?
The Military Aid to the Civil Authorities (MACA) request was issued by Business Secretary Kwasi Kwarteng on Monday.
Business Secretary Kwasi Kwarteng said: “While the fuel industry expects demand will return to its normal levels in the coming days, it’s right that we take this sensible, precautionary step. The UK continues to have strong supplies of fuel, however we are aware of supply chain issues at fuel station forecourts and are taking steps to ease these as a matter of priority. If required, the deployment of military personnel will provide the supply chain with additional capacity as a temporary measure to help ease pressures caused by spikes in localised demand for fuel.”
Defence Secretary Ben Wallace said: “The men and women of our Armed Forces stand ready to alleviate the transport pressures where they are felt most. That is why I have authorised their increased preparedness so they are ready to respond if needed.”
The Chancellor of the Duchy of Lancaster Steve Barclay said: “Thankfully, the measures we have put in place across government are working. People are beginning to return to their regular buying habits and pressure on the supply chain is easing. To make sure that this positive trend continues, we are putting military drivers on standby to help move fuel to petrol stations around the country should it be needed. This additional capacity will help prevent any further disruption.”
How are they combating a shortage of drivers?
Transport Secretary Grant Shapps has authorised an extension to ADR driver licences, which allow drivers to transport goods, such as fuel.
The measure announced today will apply to licences expiring between 27 September 2021 and 31 December 2021, and extend their validity until 31 January 2022. This will provide immediate relief to the shortage of fuel drivers by permitting affected drivers to maximise their available capacity instead of being taken out of circulation for refresher training purposes.
Transport Secretary Grant Shapps said: “We are starting to see panic buying moderate – with more grades of fuel now available at more petrol stations. People have been responding to the message to only fill up when they actually need fuel and in any case their cars are now fuller. Even though the current network of tanker drivers is capable of delivering all the fuel we need – we have taken the additional step of asking the army to help plug the gap, whilst new HGV drivers come on stream thanks to all the other measures we’ve already taken. Extending ADR licences will further help ease any pressures on fuel drivers by removing the need for refresher training courses and ensuring they can keep providing their vital service on our roads.”
Fuel giants react
The announcement follows a joint statement issued by the fuel industry confirming that fuel supplies at UK refineries and terminals remain high as well as encouraging the public to continue to purchase fuel as normal. Signatories include BP, Shell, Esso Petroleum/ExxonMobil, Wincanton, Certas Energy UK, Hoyer Petrolog UK, Greenergy, Fuels Transport & Logistics, Downstream Fuel, and Suckling Transport.
A group statement from the companies read: “There is plenty of fuel at UK refineries and terminals, and as an industry we are working closely with the government to help ensure fuel is available to be delivered to stations across the country. As many cars are now holding more fuel than usual, we expect that demand will return to its normal levels in the coming days, easing pressures on fuel station forecourts. We would encourage everyone to buy fuel as they usually would. We remain enormously grateful to all forecourt staff and HGV drivers for working tirelessly to maintain supplies during this time.”
Over the weekend the Businesses Secretary took the decision to enact the Downstream Oil Protocol to relax competition rules to make it easier for industry to share information. This will help the sector to prioritise the delivery of fuel to the parts of the country and strategic locations that are most in need.
Last week the Government announced a further package of measures to help ease supply chain pressures. These include an immediate increase in HGV testing, short term visas for HGV drivers and new skills bootcamps to train up to 3,000 more people to become HGV drivers.
HGV Driver Shortage Sparks Concerns
Despite government action, many are worried that it is far too late to react to the ongoing crisis – with many factors being blamed for the issues surrounding HGV drivers in the UK.
The UK Road Haulage Association (RHA) reported a shortage of 65,000 trained drivers on UK roads, which is already starting to have a huge impact on deliveries to petrol stations, retailers, and home deliveries.
But what more can be done to help the situation?
David Savage, Associate Vice President, UK & Ireland at Geotab comments: “With our attention drawn to the pandemic and the easing of restrictions, supply chain disruptions have taken a back seat in terms of the limelight, but many long-standing issues are coming to a head. The run-up to Christmas always places a strain on the logistics sector but multiple factors are now coming to a head to create huge issues this year.
“In June, the UK Road Haulage Association (RHA) reported a shortage of 65,000 trained drivers which has been affecting the speed and cost of deliveries across the country. While the Department for Transport has implemented short-term solutions to address this issue in the form of temporarily adjusted driving limits and rest periods, while also considering onboarding members of the Army to plug the HGV shortage, these measures have a detrimental impact on the working conditions of drivers and are unsustainable in the long run. Even in the short term, these actions seem highly unlikely to provide the cover needed for this Christmas season and beyond.
“It takes years to train and recruit new personnel, as such this problem is not going to disappear overnight. For now, the trick is to work smarter – drivers are already working to the legal limits, it’s not possible for them to work harder. Technology may offer possible solutions.
“In conjunction with an industry and Government joint effort to recruit and train a homegrown driver workforce, the sector must also embrace and invest in driver optimisation tools. In-cab telematics enable more efficient deliveries, driver fatigue and performance management, and improved driver routing, all contributing to a fleet’s ability to deliver more goods. Companies, supported by the Government, need to make such investments in low cost, high impact solutions to keep goods and services moving.”
The Government’s faint-hearted decision to grant just 5,000 temporary UK visas to foreign lorry drivers will do more harm than good, warns the home delivery firm ParcelHero.
ParcelHero’s Head of Consumer Research, David Jinks M.I.L.T., says: “The decision to take the plunge and beg for EU-based drivers to return to Britain, but then cap their number at 5,000, will please absolutely no one. 5,000 drivers are less than the paltry number of poultry workers (5,500) the Government has also invited back because it couldn’t see a Christmas turkey shortage coming. Brexiteer ministers are foaming at the mouth at the news any EU drivers will be returning, while retailers and logistics bosses are howling that the move is far too little, far too late.
“Other panic measures revealed over the weekend, such as using Ministry of Defence examiners to increase HGV testing capacity, will also do little to fix the immediate problem. And the plan to send a million letters to former drivers who hold an HGV licence, begging them to get back in the cab, is frankly astonishing.
“The driver shortage has now led to a fuel crisis. The Government’s suspension of the competition law, to allow fuel companies to target specific petrol stations, is another sticking plaster that won’t stop the bleeding. Tanker drivers are the elite airline pilots of road haulage; these skilled drivers are trained and tested continually. You cannot let a newly qualified lorry driver take over the wheel of a petrol tanker, especially after the Government recently dumbed down the HGV driver’s test.
“After most “non-skilled” EU citizens returned to their home countries in the wake of the Brexit vote, we warned the Government of a shortfall of up to 100,000 drivers. Those warnings fell on deaf ears. The UK’s entire logistics network is consequently on the verge of a major crisis. The Government may think it has stuck its finger in the dyke in the nick of time and stopped the flood of shortages. In fact, the UK’s supply-chain is now riddled with holes, and unless the Government makes the package to EU drivers vastly more attractive, Christmas shortages are now a certainty.
“We agree the driver crisis is not entirely a problem created by Brexit. There is a shortage across Europe, but Brexit has doubled the impact of the problem for the UK. Furthermore, the driver shortage is just the tip of the iceberg in terms of the impact of Brexit on the UK’s freight infrastructure.”
Impact on EV sector
With people across the UK struggling to get the fuel they need, many have started looking at swapping their current fossil fuelled vehches for electric or hybrid cars. Ian Plummer, Commercial Director at Auto Trader spoke to Business Leader on the increase in popualrity that they have seen in the last few days.
He said: “We are all familiar with the idea of range anxiety, but the events of the past few days mean we are entering the age of fuel anxiety. We have seen a massive surge in consumer engagement for electric cars on our marketplace over the weekend. Not only did the number of advert views for new and used electric models increase a record 28% and 61% respectively versus the previous weekend, but we also saw a huge uplift in the number of people sending enquiries to retailers, with one sent every two minutes. This suggests that people aren’t simply flirting with the idea of electric but have been encouraged to actively pursue a purchase. Accordingly, we expect retailers with electric stock to do particularly well this week.
“This weekend four out of five of the top performing new cars on Auto Trader were electric, with the Hyundai IONIQ 5 coming out top, followed by the Ford Mustang Mach-E. The launch of these ‘cool’ and aspirational models have been key to shifting the consumer perception of electric. This has been accelerated further by the significant increase in advertising among manufacturers, which is helping to drive awareness and dispel lingering myths.
“However, despite this boost in activity, it’s unlikely to represent a major step towards the Government’s Road to Zero ambitions. That’s because electric cars are prohibitively expensive for the majority of people, and despite the significant increase in range performance among new models, capable of reaching around 250 miles on a single charge, concerns of an inadequate charging infrastructure remain. To make them a genuinely viable option for mainstream buyers, we need more commitment to provide greater incentives to deal with the upfront cost, as well as more investment to improve the national infrastructure to support both those rare long journeys, and those without access to home charging.
“Concern about petrol availability won’t end when the pumps start up again, and so this increased interest represents a unique opportunity to inform, to excite and to incentivise car owners to make the switch. If the Government is serious about reaching its 2030 targets, then it is one it can ill afford to miss.”
Fuel shortages not a threat to the economy… yet
The well-publicised fuel shortages, which have seen 90% of petrol stations running out of fuel and hours-long queues for those that haven’t, probably won’t make much of a difference to the economy if they end this week as is widely expected. But if the pumps stay dry for much longer, then the impact of people unable to go about their work and daily lives may join labour shortages, soaring energy prices and a lack of shipping containers as another drag on the economy.
Professional services firm RSM provided this analysis.
When is a shortage not a shortage?
The government and the major fuel companies insist there is plenty of fuel to go around. The problem is a lack of lorry drivers to get fuel from refineries to the forecourt. Until panic buying took hold, even this was a small issue affecting a limited number of sites.
The main issue is that demand for petrol has risen sharply. The Petrol Retailers Association said demand for fuel was 500% higher than a week ago at one service station. And HSBC says the value of transactions at petrol stations across the weekend had increased by two thirds.
This has echoes of the panic-buying of food and other home essentials that happened at the start of the pandemic. Food sales volumes surged by 9.0% month-on-month in March 2020, causing headlines about empty shelves, but food sales fell back sharply over the next few months as the situation normalised.
What about the economic impact?
The biggest risk from the fuel shortage is that people who actually need petrol are unable to get it and are unable to travel to work. There are plenty of anecdotal media reports of workers either being unable to get to work at all or spending hours queuing for petrol instead of working.
Before the pandemic, about 50% of workers drove to work. That figure may be a bit lower now due to homeworking, but a large part of the workforce will still need fuel to get to work. What’s more, a shortage of fuel for trucks and delivery vans risks exacerbating the shortage of goods which has been hampering the economic recovery. This will inevitably be a drag on GDP growth in September compared to if there were no shortages.
There is also some evidence that some petrol stations are putting up prices in response to the surge in demand. Given that motor fuel makes up around 2.7% of the CPI basket, a 10p per litre increase in the price of fuel would add about 0.02 percentage points to inflation in September. This doesn’t sound like a lot, but when inflation is already above 3% and rising it will add to consumers’ misery.
Admittedly, the surge in fuel sales will give retail sales in September a bit of a boost. Fuel sales make up about 10% of total retail sales. But assuming that people aren’t driving more than they usually do, or are even driving less than normal to conserve fuel, then this will be offset by lower fuel sales in October. The net effect on retail sales averaged over September and October will probably be minimal.
The good news is that there are already signs of shortages easing. After all, you can only panic buy one tank of petrol. And HSBC said that spend at petrol stations was starting to return to more normal levels. The government has also announced that it will temporarily allow 5,000 foreign lorry drivers into the UK to help with shortages.
Pictures of queues at the pumps could also give a boost to the nascent electric vehicle industry. The government has already said the sale of new petrol and diesel cars will be banned from 2030, and the recent chaos could prompt hesitant consumers to make the switch sooner.
If fuel supplies return to normal later this week, as expected, then the impact on GDP in September and October will be minimal as many people have chosen to work from home for a few days instead of commuting.
If shortages drag on, however, then the economic impact will become more severe in those sectors where working from home is not as easy, such as construction, manufacturing and transport. Indeed, fuel shortages could be another reason to add to the list of why the economic recovery seems to have stagnated in the second half of the year.
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