Fuel prices are increasing sharply, primarily due to higher international prices. A further 4.9c a litre increase comes from the wage adjustment for forecourt employees, while the slate levy adds another 21.9c a litre.
This will see 93 ULP/LRP at R26.76 per litre and 95 ULP/LRP at R26.92 per litre.
Diesel will climb to R29.11 per litre for 500ppm (wholesale) and R30.05 per litre for 50ppm (wholesale). Every litre of fuel consumed on South Africa’s roads affects the underlying health of the country’s logistics economy. Changes in fuel prices have a far-reaching effect on the country’s supply chain, transport systems, the wider logistics industry as well as the pricing of goods on store shelves.
Fuel costs put pressure on freight
This increase in the price of fuel is yet another reminder of just how highly susceptible the industry is to the volatility of global oil markets. As fuel prices rise, transport companies, fleet operators, and freight customers must brace for the pressure on operational costs.
Depending on the type of operation, routes, vehicles and specific conditions of the transport leg, fuel can be anywhere between 35% and 55% of operating costs. Fuel is one of the three largest operating costs in the transport industry, thus even small price fluctuations can have significant consequences.
South Africa moves more than 80% of the land-based freight via road freight (and a large amount of the general freight on rail also uses diesel) – one can understand that highly volatile fuel prices have an effect far beyond the road freight industry.
Diesel at the heart of freight costs
With the September fuel price increase, both grades of petrol have increased by 5.27% whilst diesel has increased by 11.23% or 11.71%, depending on the amount of sulphur – resulting in an average of 11.35% increase on the cost base of between 35% and 55% as noted above.
Diesel fuels a great majority of freight movement in the country, from line-haul trucks that link ports and distribution centres to small delivery vehicles supplying local markets.
Since almost every sector depends on road freight, the changes in diesel prices have an exponential and expanded effect on the logistics industry and, unfortunately, the impact of fuel costs is inevitable.
As noted earlier, fuel is one of the biggest variable expenses and it impacts both short- and long-distance operations – it affects all legs in a logistics chain, and some transporters will now face severe cash-flow constraints.
Global pressures shaping local fuel prices
Global fuel market dynamics play an enormous role in determining fuel prices – supply and demand remains very relevant in what the (global) customer is prepared to pay for a barrel of oil, as well as the perceived shortage that drives a buying spree and thus the price for a barrel.
Secondly, as oil is primarily bought with US dollars – the value of the rand against the dollar plays a further (in our case) role in more expensive fuel at the pump.
Unfortunately, the majority of the petroleum products (crude oil and refined petroleum products) consumed in South Africa is imported, and this directly results in the domestic fuel cost either rising or falling.
The September increase is primarily caused by the increasing global oil prices, geopolitical concerns, and the growing instability in the global supply of energy networks.
Political turmoil in major oil-producing countries has now caused increased volatility to the market, which has led to worries about possible interruptions to the major distribution and transportation routes.
Oil markets typically react quickly to geopolitical risks, pushing crude prices higher and driving up the cost of refined fuel products downstream. For an economy like South Africa that imports oil, the outcome is often inevitable: higher domestic energy prices.
The ripple effect across logistics
Again, the fuel price increase does not end at the pump price: once fuel prices increase, the cost of moving goods from production sites to distribution centres, and finally to retailers is all exposed to price increases.
Road freight plays a crucial role in the long-distance moving of goods among ports, factories, warehouses, and retail locations.
Freight companies need to remain financially viable, and thus transport companies must choose whether to increase their rates (by a variety of factors of either full fuel price increase or a percentage thereof), or whether they have the financial reserves to withstand the increases.
The latter will place pressure on cash flow and reserves. Rate adjustments are often inevitable due to the recurring fuel price strain, even if some transport operators may temporarily withstand the cost to preserve contracts and relationships with clients.
How operators are managing volatility
The transportation sector has grown increasingly defined by the volatility of fuel prices, and many transport companies adjust by reducing the volume of fuel used - fleet managers lever telematics technology, fuel choice, optimal routing software, driver training, new engine / vehicle technologies, congestion and standing time minimisation / avoidance and even load sharing.
Environmentally friendly driving techniques, better vehicle maintenance, and more sophisticated logistics planning are now essential resources for controlling operating expenses.
Fuel adjustment methods have been incorporated in several transport contracts, enabling operators to partially compensate for the rapid price changes without disrupting long-term commitments. These approaches may reduce the effects of the rising fuel prices; however, they are not sufficient to eradicate them.
Navigating an uncertain road ahead
The fuel price increase in September illustrates how vulnerable the country’s transport sector is to international energy trends.
Unfortunately, it is difficult to completely rule out further fuel price increases. Already the indicators are that tensions in the Middle East will continue to place pressure on fuel prices, and it is important to note that the northern hemisphere is now heading towards winter which will increase demand for fuel.
Thus, the ongoing geopolitical tension, the surge in risk, coupled with the supply and demand factor will continue to float high fuel prices and adaptability will continue to be vital for South Africa’s freight sector.
Transport companies’ strategies for navigating this increasingly unstable operating environment will continue to be shaped by limiting fuel use, enhancing operational efficiency, and preparing for unpredictability.
One thing is certain: In a country that is dependent on road freight, such as South Africa, every adjustment in the price of diesel has consequences extending past the petrol pump, it goes deep into the transport systems that keep the country running.
