Shipping & Logistics

Small haulage firms feel the weight of increasing oil prices

An attendant fills up a tank at a petrol station in Nairobi. FILE PHOTO | NMG
An attendant fills up a tank at a petrol station in Nairobi. FILE PHOTO | NMG 

The high oil prices, slow economic activities and the political instability last year have pushed haulage companies in Kenya to extend customer credit payments while at the same time struggling to meet rising costs.

Since last year, oil prices have been rising, to an average $66 per barrel, pushing up Kenyan pump prices to around Sh106.3 for a litre of super and Sh94.82 for a litre of diesel.

That represents a steep climb from 2016, when oil prices averaged $30 a barrel and pump prices in Kenya were running at a litre rate of Sh88.64 for super and Sh76.7 for diesel.

Research shows that small and medium-sized haulage companies tend to be far more affected by such price surges, finding it harder than large hauliers to pass the increased costs onto customers.

Midland Hauliers, a mid-sized transport company handling exports and imports within East Africa, the challenge is fuelling its freight fleet of 100 trucks now that it is spending Sh1.5 million to Sh2 million more a month on fuel than it was a year ago.

It has not increased its transport rates, and thus has been forced to swallow the extra costs internally.

“We have at least seven clients that we provide services to every day and the rise in fuel prices has greatly affected us, because we have to cater for the cost of fuel which we pay in cash, allowances and other expenses, thus the burden of high fuel prices has been transferred to us,” said Andrew Mwangi, Operations Manager at Midland Hauliers Limited.

According to a European Parliament study on the impact of oil prices fluctuations on transport and its related sectors, within the road freight sector, the capacity to react to oil prices is linked to the size of operators, with big logistics companies and express couriers able to introduce flexible surcharges for diesel.

“For road freight transport, fuel cost is one of most significant components (together with labour costs). During the peak oil price period of 2007 and early 2008, the situation was quite mixed: logistics operators and express couriers introduced a flexible surcharge for diesel on the basis of officially published diesel price data, sector associations asked for urgent and immediate measures and advised their members to apply fuel adjustment to their contracts and technical organisations provided tools to help in estimating extra fuel costs,” reported the European Parliament.

“But, most road haulage companies were not able to pass on higher transport costs completely with a consequent very negative impact on their profitability.”

For Kenyan hauliers, this equation has been exacerbated by the country’s simultaneous slowdown in economic activity and the political instability last year, which has seen clients extending credit terms from 30 to as much as 90 days.

Clients, who are also feeling the pinch in paying for transport, are also seeking cheaper alternatives, exacerbating competition based on price cutting, and seeing some haulage companies lose customers to competitors.

Similar strains have been apparent elsewhere. “The existing high level of competitiveness in the road transport sector makes it difficult for the operator to renegotiate the tariffs at the time of an annual review of trade agreements since customers are often able to find competing offers on the market,” reported the European Parliament.

“Often, and particularly in times of economic crisis, the customers’ choice is directed towards lower quality services, thus damaging even big operators that may offer competitive prices and good standard services.”

Consequently, the largest part of the increase costs is absorbed by the compression of profit margins in the sector, reported the European Parliament.

- African Laughter