R20 a litre fuel hike deals logistic sector a blow as industry braces for more pain
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Durban - The Logistics sector is battling to come to terms with the most recent fuel hike – an increase to approximately R20 a litre, a first in history as an economist predicts more pain for the sector and consumers.
According to economists and private sector the worst is yet to come – and it is the consumer that, again will have to carry the can.
Chief Operating Officer at leading freight business, Big Foot Express, Denesh Singh said the domino effect of the fuel hike would hurt consumers.
“The knock-on effect for logistics costs mean more financial pressure on consumers who have already had to contend with high input costs and the global shipping crisis currently putting strain on supply chains,” Singh said.
He added that the industry is experiencing its most trying time in decades – and is having to counter the crisis through various innovative mechanisms.
But they are running out of creativity and appears that they need state intervention.
“Two of the key factors contributing to high fuel prices are the weak value of the rand – which we can put down mainly to poor government economic policy and mismanagement of our fiscal affairs, and our government's constant tendency to increase taxes on motorists through fuel-related levies over the years,” he said.
He added that the state will be hard-pressed to replace these revenue streams through other mechanisms.
Singh recommends that government seriously considers zero increases to fuel levies from here on, while exploring innovative ways to increase efficiency and reduce reliance on these levies.
Internationally, the supply chain crisis impacted on the distribution of raw products to manufacturing plants.
“The manufacturing sector has been negatively impacted due to the worldwide logistics and supply chain crisis which has adversely affected receiving raw material in time to facilitate production”.
“Escalating fuel prices ultimately burden the consumer with households having to budget more for transport and other basic essentials.
“The ripple effect also extends to increased commodity pricing with consumers getting less for much more.
“The latter is due to many freight companies’ inability to absorb the hefty fuel escalations which impacts last mile distribution costs,” he said.
For the logistics sector fuel is the second highest expenditure next to labour costs.
“Hence it has a direct impact on the sustainability of businesses trading within the logistics sector.
“Many medium to large freight entities can absorb and shield their customers from fuel escalations but the lag between the price of fuel and the surcharge billed to clients is huge.
“As much as we try to limit this adverse impact on consumers, our sustainability is dependent on passing on a fraction of the costs to our clients,” he said further.
According to Singh fuel is entering a record high in South Africa we need government and other stakeholders’ intervention to identify solutions on making the importation of crude oil more cost effective.
Economist Dawie Roodt shared his view on the fuel price and also painted a grim 2022 for the average South African.
“Unfortunately, the worst is yet to come and there are several factors that have resulted in what we are now experiencing,” he said.
Based on his own research South Africans can expect an even further increase by early next year, or possibly before the end of this one.
He added that there was always an alternative to road, and that is rail.
“Unlike other countries, goods are transported over massive distances in South Africa something that could be addressed if we had reliable rail infrastructure.
“Also, there are things that are transported on trucks that really should not be on trucks,” he said.
Spreading their own risk Big Foot Express expanding into the SADC countries, a trend that more businesses are inclined to given the increasingly challenged business environment in South Africa.
“Expanding our footprint into our neighbouring SADC countries is a strategic decision ,we have conducted extensive research and executed solutions to keep our fuel costs minimal that will render us being the most cost-effective option in the market for cross border services,” he said.
Roodt meanwhile said that it was encouraging that government is now wanting to engage in Public Private Partnerships (PPP) more.
“Transnet has finally reached out to the Private Sector for investment, something I fear should have happened a long time ago.
Roodt said that corruption remains South Africa’s “single biggest and most dangerous parasite”.
“It is unfortunate that corrupt officials have all but ruined our country,” he said, adding that the impact of Covid19 was the fuel to fire.
“Lockdown had a serious impact on the economy, especially when it comes to services such as transportation.
“Those people who were fortunate enough to have jobs saved money over lockdown and when the economy opened again priorities changed, moving goods could wait,” he said.
Roodt explained that money lenders relaxed their penalties etc, but now when it is business as usual we can expect to see a concerted effort to recover loans from consumers.
“It really has been the perfect storm,” he concluded.