Some good news

Some good news

The fall in fuel prices over the past six weeks will beadding some fat to some pretty lean margins in the trucking industry. How muchfurther will prices fall? Not much in our view. Although there are someconspiracy theories floating about that suggest the Saudis will pump enough oilto drop prices leading into the November mid-term elections in the US to helpGeorge Bush. An interesting theory, but one we don’t subscribe to.

The currency has also helped lower fuel prices. The reboundin the NZ dollar since mid-year has taken almost everyone by surprise, but inour view it won’t last. As it edges lower it will prevent fuel prices fallingfurther and may in fact nudge them higher before the end of the year.

So that wasn’t all good news, but there is more. For thepast three years one of the main sources of demand for heavy road transport –forestry – has been pretty quiet. That is likely to change over the next threeyears. The Ministry of Agriculture and Forestry are picking strong growth(6%pa) in the volume of wood harvested out to 2010.

The vast majority of this additional wood will be exported.That adds up to around 6 million tonnes of additional wood to be transportedfrom forests to ports or sawmills over the next five years. That’s a lot ofextra freight.

Furthermore, the forests from which the additional wood willcome from are in many cases further from export ports than has traditionallybeen the case for log exports. Northland and East Coast forests will beimportant sources of demand for log transport services.

To get the change in wood freight volumes in perspectivelet’s go back over the last five years. The volume of wood harvested hasremained roughly constant at around 20-21milliom m3. That volume is expected torise to 23 million over the year ending March 2007 and to nearly 27 million by2010. So forestry will move from a stagnant market for freight services to oneof the strongest over the next few years. Suppliers of trucks and roadtransport companies with experience in log haulage will need to gear up for thelift in demand from forestry companies.

In addition to forestry the simple growth in the size of theeconomy will generate demand for freight services. There is a reasonably directlink between GDP and the volume of transport services required. And asbusinesses have sought to become more efficient and add value the demand forhigh quality freight services has seen transport output increase faster thanGDP. We expect GDP to grow on average by around 3%pa. That is likely to see thevolume of freight carried within the economy double by around 2025.

So despite the tight margins and sluggish growth intransport activity evident over the past year, prospects look reasonablybright. Forestry is likely to be a star sector for the transport industry overthe next five years. 

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