Falling oil price causes problems for hauliers and supply chain in Kent
Published: 00:02, 11 February 2016
Updated: 10:40, 05 November 2019
With petrol at the pump falling below £1 for the first time since 2009, most would think haulage firm Nicholls Transport is raking in the cash.
“It’s never as simple as that,” said Darren Sherlock, finance director at the Sittingbourne-based lorry business, which employs about 130 people.
“The fall in the price of oil, and therefore petrol and diesel, is very prominent in our clients’ minds.
“As the price falls, they are straight on the phone chasing us for a reduction in transport costs but when the fuel price rises and we call them about having to raise our fees, they don’t answer the phone.
“Hand on heart we would admit it has elevated demand for transport, so there is a positive from it, but to think a reduced price of oil dumps money on our bottom line is sadly not the case.”
This toing and froing with the haulier’s clients, which include Nestle and major supermarkets, has been going on for the best part of 18 months.
Last week prices were still hovering around $30 a barrel amid soaring production figures in Iraq and from Opec, the conglomerate of oil producing nations.
A signal from Russia that it could collaborate with Opec on production has prompted a surge in prices but most experts predict low values are here to stay at least for the first half of the year.
“This all started with Saudi Arabia trying to kill off the fracking industry in America,” said Stephen Hoad, chief executive of Stop Hunter, a Canterbury-based training centre for those wanting to learn to trade the financial markets.
"To think a reduced price of oil dumps money on our bottom line is sadly not the case...” - Darren Sherlock, Nicholls Transport
“That has driven down the price but America is still pumping out oil to play them at their own game.
“The US has also done a nuclear deal with Iran, which is another big producer of oil, and they are going to pump out more of the stuff.
“We are now down to 2003 levels. At the beginning of 1998 we were at $10 a barrel and it can go down that low.”
For all this international tension, the news has been good for shoppers in Kent.
Mr Hoad added: “Saudi are in a bit of trouble but for us in Kent it is very good.
“Airlines, ferries and transport services are going to be better off and the general consumer has more money to spend.
“The low oil prices may also kill off fracking in this country because of the cost of it. They won’t bother doing it if oil is cheap.”
While it is a bonus for consumers, the low price of oil has brought hard times on companies in the supply chain of oil and gas explorers.
Subsea engineering firm Jee, based in Tonbridge, carries out underwater projects for oil and gas firms but still managed a slick set of profits last year, despite falling turnover.
“The drop in price is making it challenging but is also presenting opportunities if you are nimble on your feet,” said Jee director Jonathan McGregor.
"There is tension in the supply chain and it wouldn’t surprise me if some companies struggled to get by...” - Jonathan McGregor, Jee
“It is an opportunity for a company our size because small firms can react quickly.
“We are doing a lot of design work where a firm has asked us to take a project back to the drawing board because their revenue has decreased. They come to us to push a project forward but at a lower cost.”
Despite adapting to the market, the low price has still been tough on Jee. It reduced its staff numbers from 67 to 55 in the year to April 2015 and is trying to shift the weight of its business from about 70% UK and 30% international to about 60% overseas and 40% nationally.
“Our revenue stream is no longer guaranteed,” added Mr McGregor, who anticipates some casualties in the supply chain before long. “There is no such thing as a guaranteed job in the oil and gas industry at the moment.
“Most companies should have got their cashflow in order by now, which means they should be able to go on for as long as this lasts.
“However, there is tension in the supply chain and it wouldn’t surprise me if some companies struggled to get by.”
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Chris Price