Dark times ahead as fuel price dampen festive season

Dark times ahead as fuel price dampen festive season

September 5, 2023

Transporters who manage to keep their doors open in the face of spiralling fuel prices will be forced to increase the cost of their logistics services, a move that will ripple through the economy ahead of the festive season.

Road Freight Association CEO Gavin Kelly said many transporters have struggled to keep their businesses afloat as the price of diesel has climbed higher in recent months, with the latest price hike hitting levels last seen in June 2022.

According to the latest fuel price adjustments announced by the Central Energy Fund on Monday, the cost of diesel for transporters will increase by R2,76 (0.05% sulphur) and R2,84 (0,005% sulphur), raising inland pump prices to R23,05 and R23,28 respectively.

The price of both grades of petrol – 93 and 95 – will increase by R171 cents per litre.          

Kelly said his association was hearing from an increasing number of members how the fuel cost strain is affecting survival.

It lands more road freight operators under stress and results in business rescue as customers reduce volumes that need to be transported or even curtail stock movement. He said transporters will need to increase their pricing to cover the increased cost of diesel.

“Transporters will feel this impact on their businesses. Many transporters will not be able to muster the guarantees required for purchasing fuel on credit” – a requirement as customers take up to 90 days to pay after the transport has been provided.

He said it should be kept in mind that during this waiting period, transporters had already paid for fuel, drivers’ salaries, covered other costs and still needed to operate a business.

Some operators just don’t have any cash to carry themselves for 90 days, Kelly said.                

“The continuous increases in the price of diesel inevitably drive the cost of transport and logistics up.

“And, with roughly 85% of all goods moved around the country having a road leg at some part in the journey, there will be increases to consumers as the cost to transport goods increases.”   

Kelly said fuel breached the 50% mark in daily operating costs during the third quarter of the year.

“Now, as we head into the final months of 2023, with this 3,6% increase, the sector is heading towards the 60% level seen during the last months of 2022.

“That’s a huge increase in cost-to-company,” he said.

“Transport costs will rise. There is no alternative for transporters – and those that cannot afford to carry loads at the rates or prices customers are prepared to pay, will simply close down.”

He said this would lead to an increase in prices of everything from food and clothing to electronic goods. 

“Prices will rise – some immediately, but more so a domino effect will ensue, the next in a long line of such domino effects that we have seen too often in the last few months.”

However, he said if there were another interest rate coupled with this, consumers would be gripped in a tight financial squeeze just before the festive season when many retailers generate income to carry them through the financial year.

“This may, as in 2022, reduce any chance of a bountiful retail season as has been enjoyed in the past, and there are many consumers who will stay at home and cut the lavish spending associated with the festive season,” Kelly said.

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