Diesel price hike squeezes road freight margins

The sharp increase in diesel prices has intensified pressure on the logistics sector, with some road freight operators already battling to maintain sustainable rates and protect increasingly strained cash flow. Diesel rose to a wholesale price of R29.11 per litre for 500ppm and R30.05 per litre for 50ppm at the start of September. According to the Road Freight Association (RFA), this represents an increase of 11.23% or 11.71%, depending on the sulphur content. “Every litre of fuel consumed on South Africa’s roads affects the underlying health of the country’s logistics economy,” said Gavin Kelly, RFA CEO. “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.” According to Kelly, the sustainability of transport businesses is one of the biggest challenges facing the road freight sector. “Sometimes the things that cause rate changes are totally out of our control, like fuel,” he said during a recent presentation to the Transport Forum, adding that upcoming wage negotiations would also affect the salaries and wages paid by operators. He said transport companies could disappear virtually overnight when their contracts and rates become unsustainable. The September fuel increase was driven primarily by higher international prices. It also included an additional 4.9 cents per litre associated with the wage increase for forecourt employees and 21.9 cents per litre for the slate levy. Both grades of petrol also increased by 5.27%, taking 93 unleaded petrol and lead replacement petrol to R26.76 per litre and 95 unleaded petrol and lead replacement petrol to R26.92 per litre, adding to the cost pressures facing operators of smaller petrol-powered delivery vehicles. The RFA has warned that the effect of higher fuel prices will extend far beyond transport company balance sheets. Since almost every sector depends on road freight, changes in diesel prices have an exponential and far-reaching effect on the logistics industry, and, unfortunately, the impact of fuel costs is inevitable, said Kelly. Kelly said that amid this volatility, operators also needed strong technical expertise while complying with an expanding range of legal and regulatory requirements. “The cost of compliance is being made more difficult by operators that fail to follow the rules, creating an uneven playing field for businesses carrying the full cost of legal and regulatory conformity. It doesn’t help if you’re meeting all the rules, which is expensive, and others aren’t and actually push you out of the business,” he said. Corruption and extortion further compound the pressure, with the RFA receiving multiple complaints from operators involving various levels of authority. LV