Increasing fuel prices and market distortion in a domestic road haulage market: the case of the UK

Abstract

Differences in diesel fuel prices can significantly distort competition both between and within domestic road haulage markets. This is well illustrated by the case of the UK, where diesel fuel prices are by far the highest in the EU. The paper examines the effects of high and rising fuel prices on cabotage penetration in the UK road freight market and reviews a series of measures that have been proposed to ‘level the playing field’ between British and foreign hauliers. Within domestic haulage markets, carriers also vary in the extent to which they can recover fuel price increases from shippers. The paper reviews recent empirical evidence on this subject collected in the UK and outlines several methods of compensating hauliers for fuel price rises.