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Perfect fuel storm in the road freight and logistics industry

No-one would have thought that we would see such increases in the fuel price as we have experienced over the past six months. As we reel from these increases, the possibility of one of the greatest price increases (in South Africa) that we have ever seen, is looming.

By Gavin Kelly – Chief Executive Officer: The Road Freight Association

Oil has risen to the $114 (around) per barrel mark, the Rand is trading in the R16 range (or so) and the effect is a sky-rocketing price for fuel in South Africa. It has an impact on every single item that is transported to and across South Africa.

Oh yes, those ships also use fuel, and those tariffs are rising. There are still fewer ships plying the seas (thanks to Covid) and there are constraints in the global logistics chains that not only articulate into delays, but into demand, which has an upward price-pressure effect.

Once goods are landed, they then find their way to either consumers or manufacturers via the dependable road transport network, and that is where the next leg of the logistics journey is impacted by fuel (oil) increases. We have all felt, and will continue to feel for some time, the effects of more expensive fuel.

Now to the “Perfect Storm”: With the oil price and Rand value vis-à-vis the Dollar being what they are, there are reports that the fuel price for June will see an increase of between R1.70 to R2.00 – depending on the commodity (product). However, the “relief” offered by the government to reduce the level of taxation on the price of fuel (by around R1.50 per litre) is due to fall away at the end of May – just in time to join the new price increase.

This means a price increase of around R3.20 (a rough estimate, given all that is currently in play) by the first week of June. We cannot afford that. Or any other increases. We? Well, South Africa – but the first signs of despair and retreat will be within the road freight logistics sector.

Already, some transporters closed their doors due to the effects of the Covid pandemic. Financial pressures have remained on the increase, and the unrest that continues to ferment, radically shown by the violent period in July 2021 when the whole logistics chain was attacked (trucks, depots, distribution centres, warehouses and retails stores), continues to wear down companies and cause more closures. Operating costs within the road freight and logistics sector have continued to increase exponentially, with many of these increases coming at a time when the road freight industry can least afford, or withstand, these shocks.

There are many transport companies that cannot keep facing the continual increase in operating costs and the recent fuel (diesel) price increases have become the final “nail in the coffin” for many of our transporters.

Uncontrolled fuel increases are the factor that can cause a collapse in the road freight logistics sector.

Whether we like it or not, transporters cannot absorb the cost of fuel increases. This puts them out of business very quickly, so the fuel increase must be passed on to the client (who pays for goods to be transported), which is then passed on to the consumer. Disposable funds are decreasing, consumers are being very careful about what they buy, with so-called essentials such as food, medication, power, water and accommodation now the focus for most consumers.

There have been calls for the taxes on fuel to be reduced or removed and “collected elsewhere”. Those options will not resolve the underlying issues:

  • The basic price of oil  – determined outside of South Africa through supply and demand, and
  • The Rand / Dollar exchange rate – determined by international financial view of South Africa

Solutions to the (expensive) fuel crisis could possibly be:

  • An agreement between African states producing oil (or refined products) for a far lower rate for African countries in the spirit of the Africa Continental Free Trade Agreement (AfCFTA) and to ensure African economies do not collapse
  • Concentration by SASOL to produce far more fuel (was its goal in the 1970s and 1980s not to make South Africa independent of foreign oil supply?)
  • Development and growth of the synthetic fuels industry in South Africa – from all possible sources
  • Development of electric transportation devices and supply

Not only would we solve our transport energy consumption and demand challenges, we would definitely create employment (more importantly in a long-term and sustainable context) and would be heading in the right direction in terms of moving ourselves away from the reliance on fossil fuels.

Until then, our sole dependable form of goods distribution – from producers to manufacturers to market – will be under dire pressure and could collapse when many of our transporters close down operations, solely due to the unbearable cost of fuel. This will affect all transporters – big and small.

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