Higher diesel costs are putting pressure on transport and delivery businesses, particularly those working on fixed-price contracts that leave little room to recover rising expenses.
Businesses need to review the profitability of individual contracts and strengthen cash-flow management as fuel increases feed into transport, procurement and distribution costs, says Janus Joubert, managing director of JBS Advisory and Accounting.
The wholesale diesel price increased by R2.8438 a litre for 0.05% sulphur diesel and R3.2438 for 0.005% sulphur diesel on October 7, as announced by the Department of Mineral and Petroleum Resources.
For a business consuming 2 000 litres a month, those adjustments represent an additional R5 687.60 to R6 487.60 in monthly expenditure, assuming unchanged consumption and the full increase being passed through.
The impact extends beyond a company’s own fuel bill as suppliers adjust their prices to recover higher operating costs, Joubert says.
“The fuel hike puts pressure on all input costs because suppliers also feel the burden, meaning they have to hike prices for products to get to you. You must also make sure you take extra care and effort with your buying.”
Businesses that absorb these increases to retain customers can maintain turnover while earning less profit. Fixed-price contracts create particular exposure where charges cannot be adjusted until an agreement expires, the advisory firm says.
Higher expenses can also widen the gap between earnings and available cash. A healthy order book or outstanding customer invoices will not necessarily provide the money needed to pay for fuel, salaries and suppliers when those payments fall due.
Rolling 13-week cash-flow forecasts, updated weekly, can help businesses identify potential shortfalls. These should account for expected customer receipts, supplier payments, payroll, debt repayments and operating expenses, the firm advises.
Other measures include following up overdue invoices, comparing supplier quotations, consolidating deliveries where practical and monitoring vehicle fuel consumption.
Pricing and contract reviews should be based on actual costs rather than turnover alone. Where margins have become unsustainable, businesses may need to discuss revised rates or terms with customers.
Additional borrowing also requires careful assessment, Joubert cautions. Businesses should distinguish between a temporary shortfall caused by delayed payments and an ongoing gap between expenditure and revenue.
“The October increases demonstrate how quickly an external economic shock can translate into additional operating expenses. For businesses with tight margins, the challenge is to respond before rising costs begin affecting their ability to meet essential obligations.”
