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You can also listen to this podcast on iono.fm here.<\/p>\n
JIMMY MOYAHA: For the entire month of April, we have all been grappling with the fuel price increases that took place on the 1st of April, and we are anticipating more of the same come the month of May.<\/p>\n
We might not get a fuel price increase \u2013 but we might have the relief offered by the temporary reduction in the fuel levy disappear.<\/p>\n
So South African consumers are definitely not in an ideal spot when it relates to the cost of fuel. Other consumers in the South African market that are also experiencing these challenges \u2013 perhaps more so than the average consumer \u2013 are the road logistics companies.<\/p>\n
These are the trucks that we know move all of the goods throughout the country and ensure that you and I South Africans have our goods on time when we need them.<\/p>\n
Fuel makes up at least 35% of their costs, and this fuel price increase could prove disastrous for this particular sector. We\u2019re going to look at this in a bit more detail with the chief executive of the Road Freight Association, Gavin Kelly, who joins me on the line now.<\/p>\n
Gavin, lovely having you on the show. Fuel at 30% for any business is a significant cost. But for some of these logistics companies and particularly those in the road freight sector, things like the cost of diesel could easily be 60% to 70% of operating costs \u2013 and that is a serious concern.<\/p>\n
GAVIN KELLY: Hi Jimmy, and good afternoon to all your listeners.<\/p>\n
Yes, it\u2019s a big concern. I haven\u2019t heard of someone having it at 60% or 70%. I\u2019ve heard 55%, which is a heck of a lot \u2013 if you think, 55 cents out of every rand that you spend on operation goes to fuel [and] you still have to pay your driver, you still have to maintain the vehicle, you\u2019ve still got tires, you\u2019ve still got tolls.<\/p>\n
So yes, it\u2019s a 47% increase on your base costs \u2013 and if it was only a 30%, a 47% increase, you\u2019ve [still] got to find that somewhere.<\/p>\n
Otherwise you\u2019re out of business before you can say abracadabra, and you need to go to your customer. [And]\u00a0I\u2019m sure there are many customers who are in just a tight spot because when the price of fuel goes up, this is going to affect \u2013 across various industries, various markets, retail stores \u2013 what they pay for rental, what they pay for transport.<\/p>\n
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So suddenly you\u2019ve got to find 47% \u2013 and there are many transporters out there, Jimmy, that just don\u2019t have it.<\/p>\n
JIMMY MOYAHA: Gavin, let\u2019s look at the margins in the transport space as they stand, even before the fuel increases, for lot of the road and logistics [entities] that move through the country. Because of how many service providers might be out there, because of some of the distances that need to be travelled, margins are definitely not the same for different operators. I imagine that has an impact on profitability as well.\u00a0How much more stretched do these margins become when unexpected increases like the fuel increase hit?<\/p>\n
GAVIN KELLY: Well, Jimmy, the average return on investment in the transport sector \u2013 and I always ask somebody who says they want to get into it, why? \u2013 the average return on investment is 3.5%.<\/p>\n
Now that\u2019s really just \u2018ticking time\u2019 with inflation if you believe that headline inflation is at 3.1%. So you\u2019re just above it. You want at least about a 7-8% return on investment.<\/p>\n
So when you now have this [fuel price increase] coming through you\u2019ve got to find that extra cash, and if you haven\u2019t generated a reserve to pull you through tough times like this \u2013 and God please that this is only going to be a month, or at a stretch two months \u2013 how are you going to get through there?<\/p>\n
That\u2019s really the question because you\u2019ll find that most transport operators only get paid on a 60-90 day invoice, so you have to do the work, spend the money on the fuel and continue working and hope like anything that 60 days down the line your customer is going to pay.<\/p>\n
Remember, your customer is going to be in a similar sort of financial pinch because all of a sudden all of these suppliers\u2019 costs will have risen.<\/p>\n
So it\u2019s really hammering the sort of returns there are out there in the industry.<\/p>\n
JIMMY MOYAHA: Gavin, let\u2019s look at the operations from a road freight perspective. We already know that fuel costs impact various aspects of the value chain. And for road freight, it obviously being such a huge component, what potential reliefs, if any, could this particular sector look at?<\/p>\n
In the fuel space a lot of these service providers are price-takers. You\u2019re a consumer to a certain extent. There\u2019s no tax relief being offered. What relief measures would an operator in the road space have here?<\/p>\n
GAVIN KELLY: Well, a very good question, Jimmy, because some of the relief that you\u2019re going to seek or that you could apply is really long term.<\/p>\n
It\u2019s really about changing the types of vehicles that you have, both in size and size of consumption; how much fuel they drink, how you use those vehicles?<\/p>\n
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Are your loads full loads, half loads? Do you have half of your routes coming back empty? Can you piggyback onto somebody else to get some of your loads around? Of course, piggybacking isn\u2019t the best option because that\u2019s always a way for somebody else to take [over] your loads.<\/p>\n
It\u2019s really going to be day-to-day operations as you look at the routes that you\u2019re driving, and you try and find routes that are not as congested, where your vehicle doesn\u2019t stand idle. So, for example, when you want to load or offload, [ensuring] that you\u2019re not standing for hours in queues that stretch for kilometres \u2013 that type of thing.<\/p>\n
Can you change the route that you drive so there aren\u2019t huge differences, you know, between steep uphills and downhills. And then I suppose it\u2019s making sure your vehicles are well maintained because a well-maintained vehicle will use less fuel.<\/p>\n
Those are short-term implications or amendments or adjustments that you can make. Long term, it\u2019s capital outlay.<\/p>\n
You\u2019re going to go and buy other either diesel or very diesel-sparse vehicles or lighter vehicles, or you\u2019re going to go to battery electric vehicles \u2013 and they are not cheap. That\u2019s the problem.<\/p>\n
JIMMY MOYAHA: Gavin, let\u2019s stick with that for a moment \u2013 the battery conversation and the alternatives conversation. Road freight is much like any other freight exercise, as you said, not cheap and very, very capital-intensive.<\/p>\n
More often than not smaller players don\u2019t have the luxury of being able to pay for these vehicles upfront in cash, so you\u2019re financing this on a longer-term basis.<\/p>\n
Let\u2019s talk sustainability from a business perspective. You\u2019re unable to meet your obligations. You\u2019re forced into closure \u2013 or even, for a big logistics company, [you need to] be able to transition an entire fleet into something new.<\/p>\n
That kind of capital expenditure takes a while to recover from. At what point do you make that decision and say it might be cheaper in the long term, understanding that if the tensions in the Middle East were to wear off and the price come down, this might not be a [sensible] new expense you\u2019ve incurred.<\/p>\n
GAVIN KELLY: Yes. Jimmy, again, a good question and I\u2019ll try and look into the crystal ball \u2013 which looks a bit cloudy and cracked.<\/p>\n
But you\u2019re quite correct that this is not a cheap exercise.<\/p>\n
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Battery electric vehicles, depending on which vehicles you buy, could be two to three times the price of a normal internal combustion engine.<\/p>\n
Then you need support. If you have a diesel-operated vehicle you can drive anywhere in the country and within 50 to 100km \u2013 depending on where you\u2019re driving, obviously \u2013 you\u2019ll find a filling station. It might not be the brand you want to use, but you will find a filling station.<\/p>\n
When it comes to charging battery electric vehicles there is a little more of a challenge because they aren\u2019t at every single filling station \u2013 or even along the major routes there aren\u2019t battery charging facilities. Unfortunately a lot of the OEMs [original equipment manufacturers] haven\u2019t a simple style of battery-charger connection.<\/p>\n
If you have a simple nozzle on your fuel tank, you can take fuel from anybody, but electric vehicle batteries have different connections. So there\u2019s that problem.<\/p>\n
Then there\u2019s the problem of electricity.\u00a0If Eskom is not supplying electricity to that area where you need to be charged, you could be stuck in the middle of nowhere \u2013 up the creek without a paddle.<\/p>\n
It is definitely a far more expensive route to go.<\/p>\n
We think that the technology is still not mature, as we would call it. Probably in four to five years\u2019 time you\u2019ll find prices come down as more vehicles are available and the battery technology improves. Another problem is in terms of battery weights and charging times.<\/p>\n
So that\u2019s not going to be something I think everyone\u2019s going to jump into right now.<\/p>\n
They are going to first sit and have a look at how this technology changes and how interchangeable it is. If you have different sets of normal vehicles, can you co-charge them? Can they all work on the same system? At the moment, irrespective of how big the vehicle is, you can go to the same filling station, put in the same diesel. So that\u2019s going to be a challenge.<\/p>\n
JIMMY MOYAHA: Road freight is potentially about to experience one of its biggest challenges to contend with as fuel prices continue to increase and road operators are forced to make different decisions around whether this is a sustainable aspect of their business to continue.<\/p>\n
We\u2019ll leave the conversation on that note. Thanks so much to the chief executive at the Road Freight Association, Gavin Kelly, for joining us to look at the impact that fuel-price increases are having on road freight.<\/p>\n
#Fuel #hikes #putting #squeeze #freight #operators<\/p>\n","protected":false},"excerpt":{"rendered":"
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