Three consequences of rising fuel prices on the freight industry

Almost every item found at malls, shopping centres or that you physically own – whether it’s clothing, food, furniture, or appliances – is courtesy of the freight industry.

The freight industry involves transporting goods as cargo via air, sea or road to make its way to the consumer or manufacturer, wherever they might be across the globe.

However, as fuel prices continuously rise, it hangs one of the biggest contributors to South Africa’s GDP in the balance.

Here are three implications of increased fuel costs on the freight industry:

1. Higher freight costs

Fuel serves as the basis of the entire industry with the impact of increased fuel prices having devastating effects on the industry. Cargo carriers have no choice but to increase their prices or make a loss.

2. Indirect consequences

One of the indirect consequences is higher prices for goods which impacts the consumer. As the costs rise to transport goods, the price of the goods rises too, especially regarding items that are time-sensitive or that require refrigeration. Furthermore, the rippling effect fuel increases have can also be seen in politics, the economy, and the environment.

3. Lower usage levels

Rising fuel prices undoubtedly impact several different industries. And businesses will often cut back on the frequency of a service when facing rising costs, which is no different when it comes to the freight industry.

The future of South Africa’s industry

The latest figures from Stats SA on Land Transportation reveal a 12.4% increase in income and a 9.2% increase in the volume of goods transported for May 2022 compared to the same month last year.

This is despite the constant targeting or involvement of truck drivers in protests, which often turn violent, of which the industry and the country’s economy lose millions in revenue.

Meanwhile, as fuel continuously increases in the aftermath of the financial pressures of the pandemic, it has caused many freight businesses to close its doors.

Some consumer-facing businesses or manufacturers have resorted to keeping more goods on hand and creating goods with compact designs to increase the volume of what’s transported without increasing their costs of logistics.

Rising fuel prices will continue to affect the freight industry in multiple avenues and cause extreme uncertainty in the industry. Preparing for worst-case scenarios is the only way to ensure your company’s future.

The trucking industry is suffering in South Africa

South Africa’s entire logistics industry is facing challenges on all fronts, specifically one of the country’s most popular forms and vital to the economy: trucking.

The industry faces a lack of skilled workers and protests, inadequate infrastructure and road safety as well as the main driver of woes, the constantly rising cost of diesel.

Lack of skilled workers

It’s widely reported that South Africa has a lack of skilled truck drivers which poses a massive risk to a medium that is increasingly surpassing rail. The major challenge of a shortage of skilled drivers has a direct impact on local businesses and almost every sector of South Africa’s economy.

In June 2022 Minister of Employment and Labour Thulas Nxesi stated both the employment department and home affairs have asserted truck driving is an “abundant skill” in South Africa.

Meanwhile, South African truck drivers point to freight businesses hiring foreign nationals as taking jobs away from citizens. Notably seen in June protests this year where traffic was blocked in both directions on the N3, which connects Durban’s ports to Johannesburg, by 350 trucks – surmounting to an estimated loss of R300 million to the economy.

Inadequate infrastructure and road safety

Trucking businesses further face a battle with the roads themselves, as the lack of adequate and deteriorating infrastructure leads to longer transit times as well as higher maintenance costs for the trucks.

Furthermore, this puts the safety of the drivers into the equation in the form of fatal road accidents, as well as crime incidents such as looting and hijacking.

The constant increase in diesel

In August, Stats SA revealed the price of diesel increased from R16.58 per litre in July 2021 to R26.61 per litre in July 2022, amounting to more than a 62% increase in one year.

This has a devastating impact on the trucking industry and therefore consumers as a 62% increase in costs within 12 months is unpredictable.

The trucking industry is left with no choice but to charge clients more for their service, conduct their business at a loss, or find alternative means to save.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)