Spiralling diesel prices threaten December holiday shopping

The Road Freight Association (RFA) says the surge in diesel prices means many consumers will stay at home and cut the lavish spending associated with the festive season.

November’s fuel price adjustment came into effect on Wednesday, with diesel increasing by R1.42 per litre for 500ppm and R1.43 for 50ppm – taking the price per litre of the two derivatives to R25.49 and R35.75 respectively.

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RFA CEO Gavin Kelly says diesel prices have effectively doubled since December last year.

He adds that fuel breached the 55% mark in terms of road freight daily operating costs during the third quarter of this year and is already hovering around 60%.

Kelly says the increase will push road freight transport businesses, which use diesel, to increase their prices to cover the cost.

He warns that some transporters may simply not survive.

“This will be driven by the transporters’ need to fund operations [and] the use of fuel, whilst only being paid months after the work has been done, in some cases up to three months afterwards.”

He says in some cases businesses will have to reduce volumes to be transported or even curtail stock movement, depending on consumer consumption levels.

“Transporters will feel this impact on their businesses,” says Kelly, adding that many transporters will not be able to muster the guarantees required for purchasing fuel on credit.

Consequently, he believes the consumer will inevitably bear the cost of the rise in diesel at the till. “You and I will pay more for, well, everything.”

Higher food prices

“From food to fuel, from clothing to electronic goods and everything in between – prices will rise, some immediately, but more so a domino effect will ensue,” says Kelly. “The next in a long line of such domino effects that we have seen too often in the last few months.”

FNB agricultural economist Paul Makube says the surge in input costs will erode producer margins for farmers who, at a national scale, are already operating in an uncertain and challenging environment.

“They will not be able to be resilient,” he says. “There are many cost pressures, but the higher fuel prices will exacerbate the current situation with margins being eroded, discouraging expansion and replenishment of already expensive farming equipment.”

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Makube says not much is being done to cushion farmers, or the sector at large, against the volatile operating environment.

He notes that there are however pockets of optimism, with ongoing talks to alleviate pressure on the industry particularly in terms of improving rural infrastructure to lengthen the lifespan of essential equipment.

“We need to consult with farmers to ensure food security. The agricultural sector should be prioritised so that cost pressures can be alleviated in order for the sector to continue to provide food for the country.”

Kelly says exploring an African Continental Free Trade Area agreement that includes a goods bartering system to collectively bring the price of fuel and other resources down, could go a long way.

Nondumiso Lehutso is a Moneyweb intern.