Business Environment Profiles - Australia
Published: 12 September 2024
Road freight service price
134 Index
3.3 %
This report analyses the service price of general road freight. The data for this report is sourced from the Australian Bureau of Statistics' Producer Price Index (PPI) for Road Transport, which is a subdivision of the Transport (freight) and Storage Division. The overall PPI measures the price of all goods and services received by producers. The road transport PPI is a component of the overall PPI and measures the weighted average price of road transport. The base year of the index is 2011-12.
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IBISWorld forecasts the road freight service price index to average 133.6 index points across 2024-25, representing an increase of 0.4% from the previous year. A key determinant of the road freight service price is retail diesel prices, which typically follow trends in the world price of crude oil. Global supply chains have recovered from the pandemic shock and the Russia-Ukraine conflict, which is easing pressure on crude oil prices. Strong supply conditions have coincided with slowing global demand, particularly in the United States and China, leading to an oversupply of crude oil on the global market. These dynamics have gradually flowed through to a decline in retail diesel prices in Australia. Nonetheless, retail diesel prices are expected to remain well above pre-pandemic levels over the year, contributing to an upward trend in the road freight service price.
The road freight service price index has surged over the past five years, despite a brief interlude in 2020-21, when diesel prices fell sharply because of the effect of the pandemic on demand for road freight and global crude oil prices. Since then, prices have surged amid global supply chain instability and a sharp uptick in domestic demand. Road freight is largely price inelastic as operators face minimal competition from substitute transport operators for the final stage of delivery direct to the recipient, with road freight costs making up a small portion of each transported good sold. As a result, road freight operators are typically able to pass on inflationary price increases and rising fuel costs, along with being able to increase prices when demand rises due to higher volumes of goods being transported. Therefore, a global surge in crude oil prices in 2021-22 and 2022-23 was quickly passed through to the road freight service price index, which rose sharply in those two years.
The volume of goods transported by road freight operators largely depends on consumer spending and international trade volumes. Some emergent trends have led to higher domestic demand for road freight in the wake of the pandemic, especially the sharp growth in demand for online shopping and a spike in overseas demand for Australian mineral exports. Road freight operators transport imported and exported goods, which means that a rise in international trade volumes has also inflated domestic demand for road freight. Despite disruptions to international trade caused by the COVID-19 pandemic, total merchandise imports and exports have increased strongly over the past five years, driven by high global demand for Australian mining and agricultural commodities and an above-mentioned rise in online shopping. Overall, IBISWorld forecasts the road freight service price to increase at a compound annual rate of 3.3% over the five years through 2024-25.
The road freight service price is forecast to increase by 1.1% in 2025-26, to 135.1 index points....
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