Reduced fuel costs on diesel lines

[Taunton]

Several articles in the news describing increased use of cars due to lower fuel cost.

Must say I've not noticed any attempt by diesel train operators to offer any fare reductions, despite the basic cost of oil fuel dropping substantially in 6 months - there's no tax on rail fuel so the percentage reduction is far greater than for road users.

 

[GadgetMan]

TOCs purchase their diesel at a fixed rate negotiated in a contract well in advance. So they don't see their purchase price fluctuate, therefore no such savings to pass on.

 

[AM9]

Several articles in the news describing increased use of cars due to lower fuel cost.

Must say I've not noticed any attempt by diesel train operators to offer any fare reductions, despite the basic cost of oil fuel dropping substantially in 6 months - there's no tax on rail fuel so the percentage reduction is far greater than for road users.

If it affects the bottom line, they may consider it but the price will return to normal before that happens anyway.

 

[First class]

Because most diesel lines are already running at a massive loss in the first place?

The reduction in fuel costs, (which doesn't make much difference initially, owing to bulk buying anyway - today's fuel was probably negotiated and paid for months ago), just slightly improves the loss.

 

[Starmill]

TOCs purchase their diesel at a fixed rate negotiated in a contract well in advance. So they don't see their purchase price fluctuate, therefore no such savings to pass on.

In the long term, all consumption is elastic and all prices are completely flexible.

This doesn't mean I think fares should drop because an element of variable cost might drop in future, because a majority of fares are too high as it is and should just go down anyway.

 

[jopsuk]

There are three all-diesel franchises. The pedants will claim only two, but I think we can ignore the First Great Western stake in Heathrow Connect.

as far as I understand, TOCs buy fuel on long term fixed price contracts. These insulate them from the fluctuations in the oil market. The downside? Lose out when there's a big drop in crude prices. I think airlines, ferry companies, even bus operators and road hauliers do the same.

Ticket prices, especially the regulated ones, are only changed at fixed points.

 

[SPADTrap]

Several articles in the news describing increased use of cars due to lower fuel cost.

Must say I've not noticed any attempt by diesel train operators to offer any fare reductions, despite the basic cost of oil fuel dropping substantially in 6 months - there's no tax on rail fuel so the percentage reduction is far greater than for road users.

Because how often have you seen a TOC filling its trains at the pumps?

 

[LNW-GW Joint]

Several articles in the news describing increased use of cars due to lower fuel cost.

Doesn't help the business case for electrification, or greater use of electric locos...
Or the green agenda.

 

[jopsuk]

Well the drop in oil prices appears to be down OPEC just deciding that they should drop... they can and will reverse that.

 

[Taunton]

TOCs purchase their diesel at a fixed rate negotiated in a contract well in advance. So they don't see their purchase price fluctuate, therefore no such savings to pass on.

Possibly I should explain how long-term bulk fuel price contracts work.

They do get negotiated for a fixed term, commonly 3 years, as a fixed price for a "notional" litre, which the various bulk suppliers tender against.

However, what then happens is an independent organisation publishes every week an "index" of current refinery prices against the notional price, and each week your fuel bill for deliveries is the tendered price multiplied by the index.. So it does go up and down each week depending on this. However, by this method the one who quoted the lowest price always ends up being the lowest, because any quoted prices are multiplied by the same index.

 

[M7R]

Well the drop in oil prices appears to be down OPEC just deciding that they should drop... they can and will reverse that.

I was listening to the radio the other day and there was a piece about this, basically the new boys in the US getting oil by fracking etc have been selling a bit cheap, so driving down the cost of a barrel, this hacked off the Arabs etc in OPEC, so they upped production to drop the price, the U.S. boys didn't take the hint, so OPEC dropped the price further in order to price the ones getting oil by more expensive methods out of the market, once the others step into line and raise the price a bit back to where OPEC are happy / or they go bust... Then the price of a barrel will go back up, as will the pump price, the expert thought we had a few more month, we would get down to about £1.10 at the pumps or so and then we will go back up..

So for the railway the cost drop won't be big enough or long enough to feed through to lower ticket prices, all it may do is put a few extra quid in the kitty for a few weeks,

 

[LowLevel]

There are three all-diesel franchises. The pedants will claim only two, but I think we can ignore the First Great Western stake in Heathrow Connect.

as far as I understand, TOCs buy fuel on long term fixed price contracts. These insulate them from the fluctuations in the oil market. The downside? Lose out when there's a big drop in crude prices. I think airlines, ferry companies, even bus operators and road hauliers do the same.

Ticket prices, especially the regulated ones, are only changed at fixed points.

This pedant makes it more - EMT, XC, ATW, Chiltern, FGW (ish).

 

[IanXC]

This pedant makes it more - EMT, XC, ATW, Chiltern, FGW (ish).

Or even 7... If we add Hull Trains and Grand Central.

 

[edwin_m]

I read somewhere that the price has gone down because the Saudis are trying to punish the Russians for supporting Assad and the Iranians for, probably, just being there.

The price of fuel is a much bigger proportion on the costs of motoring than the costs of running a train service. So if it goes down more people will be driving and fewer people will be on the train. The loss of revenue may well outweigh any reduction in costs for the train company.

 

[scandal]

In the long term, all consumption is elastic and all prices are completely flexible.

This doesn't mean I think fares should drop because an element of variable cost might drop in future, because a majority of fares are too high as it is and should just go down anyway.

Fuel tends to be inelastic as does the demand for rail fares. Additionally rail users do not pay the full marginal costs of their journey.

Literature by Glaister and also by Oum will shed light on this.

 

[Clip]

Or even 7... If we add Hull Trains and Grand Central.

This pedant would like to point out that HT and GC are not franchises but Open Access operators

 

[Starmill]

Fuel tends to be inelastic as does the demand for rail fares. Additionally rail users do not pay the full marginal costs of their journey.

Literature by Glaister and also by Oum will shed light on this.

I will look into Glaister, Oum is indeed very useful.

Agreed that commuting is very inelastic. Leisure travel less so. This of course affects the consumption of both. Indeed the collective payment of marginal costs of railways, and the low perceived marginal cost of motoring are drivers of the market failure that results here.

 

[merlodlliw]

TOCs purchase their diesel at a fixed rate negotiated in a contract well in advance. So they don't see their purchase price fluctuate, therefore no such savings to pass on.

So its being bought on the futures market today for next year, will we see a drop in fares next year , not on your life mate.

 

[Bald Rick]

Did anyone see a sudden fare increase when oil prices more than doubled in 2008?

 

[Hellfire]

Just out of interest how much diesel does an HST consume in litres per mile?

 

[mrmartin]

http://www.atob.org.uk/technical/are-trains-really-green/

Doesn't say HSTs (just all trains) but 1.7mpg or in your rather whacky units 0.38miles/litre.

 

[ASharpe]

in your rather whacky units

I don't think those units that odd considering how most of us use diesel. We buy it by the litre and use it by the mile.

I think things should be made easier for us all by selling it by the gallon.

 

[AM9]

I don't think those units that odd considering how most of us use diesel. We buy it by the litre and use it by the mile.

I think things should be made easier for us all by selling it by the gallon.

Why does that make it easier?

 

[syorksdeano]

Because how often have you seen a TOC filling its trains at the pumps?

Do you think they will give me their Nectar Points?

 

[HSTEd]

Rail fares are on a ratchet - they only ever go up.

 

[Donny Dave]

I was listening to the radio the other day and there was a piece about this, basically the new boys in the US getting oil by fracking etc have been selling a bit cheap, so driving down the cost of a barrel, this hacked off the Arabs etc in OPEC, so they upped production to drop the price, the U.S. boys didn't take the hint, so OPEC dropped the price further in order to price the ones getting oil by more expensive methods out of the market, once the others step into line and raise the price a bit back to where OPEC are happy / or they go bust... Then the price of a barrel will go back up, as will the pump price, the expert thought we had a few more month, we would get down to about £1.10 at the pumps or so and then we will go back up..

I read somewhere that the price has gone down because the Saudis are trying to punish the Russians for supporting Assad and the Iranians for, probably, just being there.

Do you know how the market works? The reason that the price of oil has gone down is that shale gas/oil extraction in the US has yielded a lot more than expected, plus non OPEC oil producing countries (for example, Russia) not reducing the amount they produce. OPEC have not increased or decreased quotas for quite a while now.

The likes of Saudi Arabia do not control the price of oil, it's all determined on the London Stock Exchange.

 

[edwin_m]

Do you know how the market works? The reason that the price of oil has gone down is that shale gas/oil extraction in the US has yielded a lot more than expected, plus non OPEC oil producing countries (for example, Russia) not reducing the amount they produce. OPEC have not increased or decreased quotas for quite a while now.

The likes of Saudi Arabia do not control the price of oil, it's all determined on the London Stock Exchange.

But OPEC could have decreased quotas to send the price back up.

 

[Peter Mugridge]

But OPEC could have decreased quotas to send the price back up.

I thought the reason they haven't is that they are trying to drive the US shale producers out of business first?

 

[edwin_m]

I thought the reason they haven't is that they are trying to drive the US shale producers out of business first?

My point (or rather M7R's) exactly.