As global conflict escalates, electric heavy trucks are crucial to building Australia’s sovereign capability

The escalating conflict in the Middle East has enormous implications for Australia’s transport energy security and is a wakeup call for Australia to rapidly accelerate the electrification of heavy road freight.

Within the broader economy, Australia’s food supply chain is highly dependent on heavy road freight. Heavy articulated trucks are a vital part of the complex supply chain that moves Australia’s primary produce from farms across the country, through processing and packaging facilities, and distribution centres, to the thousands of supermarkets that feed the millions of people living in our major cities.

We’ve all driven past a truck with a sign saying, “Trucks keep Australia moving” or “Without Trucks, Australia Stops”. While these signs are true, they actually understate the importance of heavy trucks. In the context of Australia’s food supply chain, they should read “Without trucks, Australia starves”.

After the US, Australia is the most road freight dependent nation on earth on a per-capita basis. Measured in tonne-kilometres (tkm, the movement of one tonne of payload by one kilometre) Australians use around 9,000 tkm of road freight per year.

Within road freight, heavy articulated trucks dominate. Heavy trucks make up just 3% of all road freight vehicles in Australia but they account for around 80% of the tonne-km. Obviously, these high payload, high kms operations also have enormous energy requirements which is why diesel costs make up a much higher proportion of the total cost of ownership (TCO) for heavy primary and secondary freight compared to last-mile deliveries.

Australian road freight highly exposed to global oil price volatility

Because diesel represents such a large proportion of their cost structure (up to 40% in some cases), when negotiating long-term freight contracts, trucking companies add a diesel surcharge to their base price to protect themselves from volatile fuel prices.

This surcharge varies from month to month and is essentially pegged to the diesel price and therefore the global oil price. This means any movements in the global oil price are understandably borne by the transport buyer, not the trucking company.

So, while Australia’s food supply chain is highly dependent on heavy road freight, heavy road freight is highly dependent on the global oil price. And that represents a major risk to Australia’s economic and food security. Over 90% of Australia’s fuel is imported leaving Australia vulnerable to any disruptions stemming from growing global conflicts. With conflict now escalating in the Middle East, experts are predicting a significant increase in oil price is highly likely.

Located between Iran and Oman, the 30km wide Strait of Hormuz is considered the world’s most important oil transit choke point with over 20 per cent of global oil consumption flowing through the straight every day. Its disruption or even closure could cause a global transport energy crisis not seen since the 1970s.

Last week, JP Morgan said that in a scenario in which the Strait of Hormuz was closed, global oil prices could surge to $US120 to $US130 a barrel. With a current price of US$72.40 per barrel, such a scenario would represent a 65-80% increase in the global oil price. This would likely push diesel prices in Australia up from around $1.80 per litre to over $2.50 representing a 40% increase in transport energy costs for trucking companies. This would be passed on through the fuel surcharge to transport buyers, increasing heavy road freight costs by 15-20%

With the long-term trend of growing global conflicts placing oil supply chain pinch points like the Strait of Hormuz and others at risk, Australia’s dependency on imported transport energy should be ringing alarm bells in all levels of government and boardrooms across the country.

Electric heavy trucks key to Australia’s sovereign capability

Sovereign capability refers to a nation’s ability to independently develop, produce and sustain critical goods and services that are essential for its economic security and national resilience. The distribution of food is obviously a key capability, therefore onshoring a large portion of the transport energy supply chain should be one of the highest priorities of any nation.

Electric heavy trucks are not only capable of operating at lower costs than diesel trucks, they enable the decoupling of road freight from global energy markets and therefore represent a unique opportunity for Australia to build substantial sovereign capability.

Developing the capability to service key freight corridors with electric prime movers running on locally produced electricity should be and must be a key focus for Australia, especially given the current global trends.

While electric heavy road freight represents price stability for transport buyers, it also presents new major investment opportunities. It’s going to take many years if not decades for Australia to transition fully to electric trucks. For much of that period, the price of road freight will continue to be closely correlated with the global oil price.

The opportunity for electric trucking companies is that while their revenues will be largely pegged to the global oil price, their energy costs won’t be.