The anticipated increase in the fuel levy during the Budget Speech later this month, will not only negatively impact consumers and businesses, but also place importers under increased pressure in already challenging market conditions says Adam Orlin, Head of Investec Import Solutions.
“With several economists of the opinion that the price of petrol and the fuel levy will continue to rise this year, the knock-on impact this will have in the South African market will be significant. The transport industry is already operating under incredibly low margins so any additional increases could be quite damaging,” he says.
This is expected to see a further increase in transport costs as the industry attempts to mitigate the additional economic expenditures. Importers will therefore need to find more innovative ways of offsetting costs and pro-actively plan around this given their reliance on the transport industry for the distribution of goods from the ports of arrival.
“In a price-conscious market, we are incredibly aware of all the related increases that changes to the fuel levy (and per implication the petrol price) will have for all South Africans.
“Even though the impact on inflation might not be as bad as anticipated, importers need to be even more savvy in terms of how they position their products in a cash-strapped market,” Orlin adds.
Even though freight handling has been consistently upgraded since the 2010 World Cup across airports and sea ports, the challenge lies in getting the goods reliably (and cost-effectively) transported to company warehouses.
“There is, unfortunately, no silver bullet to addressing higher fuel levies. Despite importers doing future-forward planning around these increases, the reality sees consumers ultimately paying the price of a leaner supply chain. Profitability is already under the spotlight so decision-makers at importers and transport companies are feeling the pressure to do more than simply raising prices,” he says.
Some of these initiatives could include enhancing partnerships between importers and transport and logistics companies. Implementing new technology on the back-end to manage the supply chain more efficiently could also assist in cutting unnecessary costs.
“Additionally, import and working capital specialists can go a long way in freeing up capital that is traditionally tied in with stock and imports. For a business limited by cash flow, this is a game changer as businesses can offset costs with additional benefits where debt can actually help them grow.”
“Despite the negative sentiment around the fuel levy increase and the economic challenges it creates, there are also opportunities for importers to find even more innovative ways of using available technologies and other solutions. And while the risk to the collective pockets of South Africans is real, it should not be all doom and gloom as importers identify other ways of delivering value,” concludes Orlin.