Expect an airfreight rates hike as import fuel plan founders

AIRFREIGHT RATES from South Africa are set to rise considerably in the near future, if the government rejects the South African airline industry's application to import its own jet fuel.
Indications are that this will be the case, following an announcement by Theunis Burger, director of transport energy in the department of mineral and energy affairs, that his department has advised against the direct importation of jet fuel.
Burger says his department is concerned that importing jet fuel in this manner would affect downstream and empowerment opportunities in the oil industry.
It has come as a severe blow to our aspirations, but there isn't much that we can do about it right now, says Andrew Banks, senior manager of petroleum affairs at South African Airways, one of the operators most seriously affected by the local pricing structure.
SAA is losing more than R200 million annually and the Airlines Association of South Africa (AASA) pointed out at its recent annual meeting that jet fuel prices at Johannesburg International Airport were some 30% higher than similar international locations with comparable supply logistics.
By importing jet fuel directly, it would enable the association's members to withstand rising costs in other areas, the meeting was told.
An application was made, as a result, to allow the industry to import its own fuel. SAA purchases about 60% of its fuel from local airports. It has pointed out that the high prices were caused by the outdated in-bond landed cost (IBLC) pricing structure, set up to address sanctions against the previous government. The IBLC formula charges a blanket 12,8c a litre railage fee plus other costs.
Now Banks and AASA executive director John Morrison see the impending failure of their bid as a blow to the industry which cannot sustain further financial drainage.
There has been a wall of silence since we put in our application, says Banks. Now we hear that the department concerned is against it, and frankly I don't have much hope of success on our part at this stage.
The fuel price dictates a considerable amount of the various airlines' operating costs, and there can be no doubt that cargo is going to have to be shipped out at higher prices in the future if the present structure is to remain.
Of course, we will continue to investigate mechanisms to try and reduce costs. We have some ideas, but these are too sensitive to be discussed in the open at this stage.
It is important to note that it is neither SAA or AASA's intention to undermine existing oil industry infrastructure. On the contrary we all enjoy exceptionally good business relationships with that industry. But we have to do what we can to combat rising costs for the good of the airline business as a whole.
By Leonard Neill