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Business Fleet Africa August 2022 – The far-reaching effects of fuel price increases

With the courier and delivery industry being one of the fastest growing in South Africa, thanks to boosts in demand arising out of the COVID-19 pandemic and the proliferation of e-commerce platforms, it has been deeply impacted by the steep increases in fuel prices in recent months, with businesses being compelled to pass increased costs on to others in the supply chain.

The far-reaching effects of fuel price increases

While August’s drop in fuel price has been welcomed from many corners of society and business, the only constant for the transport industry is the uncertainty of roller-coasting fuel prices that force them to find a precarious balance between nurturing their client relationships and maintaining sustainable businesses.

This follows a 57% increase in the price of diesel between April 2021 and now, with more than one-third of that between January and June 2022. Those are increases that impact between 30 to 40% of a courier and delivery business’s operating costs – particularly when it comes to larger trucks.

The South African delivery market is considerably different from its counterparts in Europe, where one delivery driver and their vehicle could easily make 30 – 40 deliveries within one city block, all within a couple of hours – and then do so using an electric vehicle that’s not held hostage by soaring fuel prices.

In South Africa, nearly half of business-to-consumer deliveries are to rural addresses, with drivers having to travel far distances over longer periods to make just one delivery. This geographic spread further exacerbates the cost impacts of continuous fuel price increases.

While electric vehicles are on the horizon, in most cases they are still too expensive to buy for business use because of misplaced luxury goods import taxes, along with range anxiety created by a dearth of charging stations. What’s more, electricity is scarce, unreliable, and costly in South Africa, and running a fleet of electric vehicles will require extensive investment in infrastructure by both government and business.

Help is on the way

There are currently serious talks taking place on the deregulation of fuel, but whether this will ever happen remains to be seen. On the one hand competition between filling stations could mean lower prices. However the already tight margins that fuel station owners have to work with could potentially mean that this business model will not be sustainable for filling stations that are less busy, such as those in smaller towns or off main routes. In addition the deregulation of fuel could be the catalyst to abolishing the use of fuel station attendants and adopting a self-service model, with labour being one of the biggest overheads for fuel station owners. With many factors and entities in play, we will have to wait and see if it is possible to change the status quo.

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Tristan Wiggill
Special Features Editor at Business Fleet Africa