MJ SCHOEMAKER: Fuel price hikes will have far-reaching impact on supply chains

South Africans have responded to the petrol price hike with outrage, despair and — in typical SA fashion — with humour. They have speculated that lobola may be paid in petrol in future. They have suggested that one should propose with a jerrycan of petrol instead of a diamond engagement ring. The symptoms of “car owner virus” have been lamented and laughed about on social media.

What we should be doing though, is bracing ourselves for the hard-hitting and far-reaching impact of the petrol and diesel price hike. It is going to affect South Africans way beyond the increased amount to pay when they fill up at the fuel station.

The obvious impact is in the logistics sector, where transport companies and service providers will have to pay more for their diesel. These costs will have to be pushed through to their customers in the form of a fuel surcharge. However, it is not only transport costs that will be affected.

What many people are underestimating is how the petrol and diesel price hikes will push up the average order cost in virtually every production cycle. We can expect increases in costs across entire supply chains — from the price of raw materials to the cost of transporting them to factories, in manufacturing costs to the increased cost to distribute finished goods to distribution centres and retail outlets.

The average price of virtually everything that we buy is going to go up because of the fuel price hike. Every 10% increase in the price of fuel will mean consumers have to pay about 12%-15% more for goods at the store till in the retail space. Even the property sector will be affected as projects may have to be put on hold if costs cannot be recovered.

The agricultural industry will be especially hard hit, which will in turn drive up the cost of food. It is misleading to only refer to fuel price increases, because what we should be looking at and considering is the crude oil price. The crude oil price affects the agricultural industry even more than other sectors, because fertilisers and pesticides are derivatives of crude oil.

This is an additional consideration on top of the increased cost of the diesel used by farmers on their farms and to transport goods to factories and to consumers. The impact will be felt across the entire agricultural supply chain — from the crops in the ground right to the shelf of the supermarket.

In the wake of Covid-19 cash flow is a concern and a challenge for most companies today. Exacerbated by the fuel price increase, this may lead to shortages because businesses may be unable to manufacturer sufficient quantities to meet demand. This scarcity will then lead to further price increases of goods on shelves.

Consumers should try not to panic. We are not likely to be faced with a food shortage, but the fact that it is going to cost more will certainly hit South Africans in the lower- and middle-income groups. In addition to paying more for food and other goods, consumers will pay more for transport, including taxi fares, which were already hiked during the Covid-19 pandemic.

People who work in businesses and industries, where it is possible, will most likely be given the option to go back to working remotely and are likely to do so. This will affect the commercial property market because demand for office space may not pick up as hoped in the wake of Covid-19.

Don’t be surprised if your supply chain manager friend or colleague does not see the humour in a meme about car owner virus. The fuel price hike is the latest in numerous chaotic disruptions that have stressed and stretched supply chain professionals in recent years, including the pandemic and the Ukraine conflict.

One upside though is that businesses should have learnt lessons from previous disruptions, which have highlighted the fragility of existing supply chains when they are suddenly and unexpectedly disrupted. Organisations should have risk assessment plans in place. They should already have built scenarios to understand the impact and risks related to an increase in the crude oil price so they can make decisions quickly.

Businesses that have not already done so must now think carefully about how to optimise their production efficiency and costs. They may no longer be able to reap the cost benefits of high-volume production, because it will not be cheaper. Ideally, manufacturers should have already learnt that they need to be producing what the market needs. Demand reviews should have been done, along with short- and long-term risk management assessments based on the current and future needs of the market.

However, many SA businesses need to up their game on this front. The tendency in SA is to use tools that are manual or to work around an existing system. It creates an environment whereby they cannot act fast enough and spend too much time data crunching.

Supply chain risk is something that has been spoken about for some time and the SA Production and Inventory Control Society (Sapics) has provided many learning opportunities for supply chain professionals in the past. Until now, only a handful of industries have embraced supply chain risk management.

This important topic is on the programme of the 2022 Sapics Conference, taking place in Cape Town. This year’s 44th annual conference is a milestone as it is the first in-person meeting of the African supply chain community since the start of the pandemic. 

The supply chain profession has rarely been more challenged than in today’s volatile, uncertain, complex and ambiguous environment. It is critical that businesses and supply chain practitioners in particular have the tools in place to anticipate disruptions, to respond swiftly and efficiently when they occur, and to ensure that supply chains are flexible and resilient.

• Schoemaker is president of Sapics, the professional body for supply chain management in Southern Africa.