Monday, 12 August 2013 10:45

Fuelling the fire – the impact of rising fuel prices on logistics management

South African businesses are forced to review their logistics cost planning in order to absorb the recent rapid rising of fuel costs.

This year got off to a bumpy start with two significant increases in petrol prices in the first quarter. The price of petrol in South Africa most recently rose by 81 cents, threatening the sustainability of many local businesses.

According to Hennie Heymans, managing director of DHL Express South Africa, the rising cost highlights the need for businesses to re-evaluate logistics costs in order to prevent these increased costs 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 will review and look to streamline delivery processes in order to stabilise costs and keep client tariffs stable.

Heymans says that over the past ten years the fuel price has, on average, increased by 11% per year, which is far above the official inflation rate, which 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 liquefied petroleum gas (LPG), making use of intelligent route mapping and planning, as well as cutting back on routes where warranted.

“A strategy for businesses to consider for reducing 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 a global trend is to outsource logistics to external partners in order to reduce costs and simplify delivery structures. “A logistics partner ensures that 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 also 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.

Heymans says that from an industry viewpoint, 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.”

He says DHL Express South Africa has over 200 vehicles running on 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.

“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 on certain routes.”

Heymans says that this upward petrol price trajectory could have a negative impact on the logistics industry in the long run, 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 onto their clients, who would then in turn pass it onto 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.

DHL Express

Tel: +27 860 345 000




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