by Janine Noble

Impact of petrol price hike

SA businesses are urged to review logistics costs to absorb rising fuel prices

Hennie Heymans, DHL Express managing director (South African business division)
Hennie Heymans

According to Hennie Heymans, managing director of DHL Express South Africa, the rising cost of fuel highlights the need for businesses to re-evaluate logistics costs, in order to prevent these increased costs from impacting on end consumers’ pockets. 

Heymans says that from a logistics perspective, the new petrol price will result in increased road and delivery costs. He advises that businesses review and look to streamline delivery processes in order to stabilise costs and keep client tariffs stable.

He adds that over the past 10 years, the fuel price has, on average, increased by 11% per year, which is far above the official inflation rate that has hovered around 6%.

“We have found that businesses have attempted to absorb this increased cost by improving driving habits, encouraging intelligent driving behaviour, considering alternative fuel options such as diesel or LPG (liquefied petroleum gas), making use of intelligent route mapping and planning, as well as cutting back on routes where warranted.

“A strategy for businesses to consider to reduce petrol-related costs could include planning smarter travel routes and shipments. Due to the high costs of transport, there is now a greater need for a sustainable supply chain.”

He says that a global trend among businesses is to outsource logistics to external partners in order to reduce costs and simplify delivery structures. “A logistics partner ensures transport routes are more efficient and shipments are streamlined as much as possible.

“Businesses in South Africa are under increasing pressure in the current economic climate to remain competitive, both locally and globally. Outsourcing logistics strategically can potentially make a significant positive difference to a business’s profitability, due to the reduced cost and the decrease in company resources.'' 

The increased fuel price could make South Africa less attractive for foreign investors. “We know that many global companies still use South Africa as a springboard into Africa. Fuel costs simply add to existing logistical costs, which are already between three to nine times higher than that of our European counterparts. These kinds of costs could mean that businesses look for alternative entry points into the continent,” notes Heymans.

He says that from an industry standpoint, fuel costs are usually the second highest cost for the logistics sector after salaries. “These rising costs therefore also have a wide-ranging impact on the industry.”

DHL Express South Africa has over 200 vehicles running routes in all major cities, and the daily additional cost for fuel will be heavy. “It will, however, push us to look at route structures and analyse how we are able to minimise fuel costs across the fleet. Another option will be a shift to more LPG Go Green vehicles, which certainly helps to mitigate such cost increases and is gathering momentum in many of DHL’s global markets,” says Heymans.

“In light of increased costs, one has to also consider other ways of reducing costs in no-petrol areas. For example, we have a very good network costs reduction programme in place to ensure optimal operating efficiency at costs that make it viable to continue operating certain routes.”

He adds that in the long run, this upward petrol price trajectory could have a negative impact on the logistics industry, as firms with a low revenue base or low margins will most likely not be able to compete with other market players who may be in a better position to absorb such cost increases. “Logistics firms can only absorb so much before factoring in the additional costs and passing it on to their clients who would then in turn pass it on to their customers.”

Smart logistics strategies can improve customer service and reduce pressure on business. “Businesses do, however, need to be diligent and careful when putting these strategies in place, as the failure of these systems could have far-reaching negative effects,” concludes Heymans.

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