Increased fuel costs are not merely increased fuel costs

Like load-shedding, fuel price hikes in South Africa are so frequent that we have become desensitised to them. When a hike is announced, we hear of it and go about our daily lives. However, increases in fuel prices have an impact on more than just the ultimate delivery costs of products. Transport plays a crucial role in the supply chain. The concept of supply chain management refers to the comprehensive process of sourcing and transforming raw materials into a usable final product for retail sale. In general, transport contributes between 37% and 39% to the total production costs of a product. In reality, every time a part of the materials is transported from the point of origin to the point where it is needed for the production process, the proverbial meter runs, and costs accumulate.

Take maize meal as an illustration. Starting with the seeds, planting, maintaining the vegetation, harvesting, loading, offloading at silos, transporting to different locations where the maize is transformed to the consistency required for different types of use, packaging, transportation to the wholesaler, and transportation to the retailer, every step of the process costs money. So, each time the wheels turn in this convoluted process, which has geographically dispersed subprocesses, an increase in the fuel price has a direct monetary impact.

The direct input costs for a 10 kg bag of maize meal, which costs approximately R100, range between R37 and R39. At some point, the increased price of fuel will have to be reflected in the selling price, so users of this staple food would have to pay more than R20 more for the same quantity of maize meal than they did a year ago. Aside from that, the direct burden of paying for public transportation has also increased, preventing users from purchasing the same amounts of maize meal as they did a year ago.  Taking it all into account, it paints a very bleak picture for the average person on the street. 

The South African government has very strategically gone about not publishing specifics about fuel price increases for extended periods of time. Despite learning about the monthly fuel price increases and recognising they are getting less for their money; many South Africans rush to fill their tanks. The typical South African is unaware of the specific changes.

There are several stakeholder groups in the transportation sector, including those that offer transportation (either as the major or as a subsidiary function of an enterprise) and those that consume it (freight and passengers). Nobody is immune from the absolute direct effects of a rise in the price of fuel.

Service providers in the transport industry are feeling the pinch because the cost of fuel accounts for more than 55% of their total operating costs. Despite their best efforts to run their operations according to sound economic principles, they are unable to clear this hurdle. They have little choice but to pass along the cost of this rise in fuel costs to the customer. This is in addition to the emotional pressure to keep prices stable so as not to exclude the poorest of the poor.

The working population in South Africa is mobilised daily by public transportation. These commuters usually choose this kind of transportation because they have no other option for getting to and from work. They are referred to as captive users who are allowed access to mobility solely so they can put food on the table and have no other options. Any change in price will not significantly affect the demand for public transportation because it is essential.

As more of a user’s disposable income is used for transportation, this has the direct impact of leaving such a user with less and less money at the end of the month. Despite all the efforts, South Africa's transportation and related industries are at risk. Transportation is no longer a means of making money – businesses are switching to survival mode and are now merely scraping by.

It will become necessary to think about and use newer, wiser and better solutions for transportation. The wealthy options like working from home and 4IR solutions are not relevant to the ordinary captive user sitting in a crowded taxi on the way to a survival job, day after day.  

At the Vanderbijlpark Campus of the North-West University (NWU), a new subject of study called "Transport Economics and Logistics Management" has recently been introduced. Relevant issues are recognised and integrated into our curriculum with the participation of the industry and key stakeholders, ensuring that graduates are competent to meet the demands of the constantly evolving transportation sector. Nobody can control the events of the world, but through this new study field we try to educate our graduates on how to respond to them. Covid and the conflict between Ukraine and Russia have negative effects on the entire world. Many corporations were caught off guard and could not react in a way that would ensure their long-term existence. A thoroughly considered curriculum that integrates the latest industry trends and advancements best positions our graduates to enter the industry and make a big difference. Our ultimate objective has always been to be capable of reacting to unforeseen circumstances while minimising the impact on the industry.

Submitted on Wed, 10/26/2022 - 10:07