How has the fuel crisis affected transport companies?

BUSINESS FEATURE | THE INDEPENDENT |  Rising fuel prices typically force businesses in the transport and logistics industry to either raise prices for their services or suffer a financial loss.

If the prices continue to increase, the trucking companies, couriers, and packaging material providers will have no option but to increase the cost of their services – which will eventually begin to reflect on the prices of their services as well.

With the fuel crisis facing Uganda, the situation worsened in upcountry regions as some districts like Hoima had a litre of petrol going for Shs 12,000 from the usual Shs 4500-4600.

In Fort Portal, minibuses were seen buying and ferrying fuel in jerry cans to transport to other districts of Ntoroko, Kamwengye, and to also sell to boda boda riders.

But what does this mean for Car Rental Uganda companies which offer a range of services; from self drive and chauffeur driven car hire, corporate, bus rentals and the Safari land cruisers for excursions? Definitely, the effects of a fuel crisis pose huge losses especially with the pre-booked arrangements

The fluctuation of fuel prices disorganizes the prior company-client agreements on the services in question and their respective costs.

The same goes for tour companies such as the Primate Safaris whose clients’ bookings are made even months prior the date of the safaris. Such unforeseen crises, particularly as concerns fuel which is a vital factor in the tour industry, are a nightmare for the company’s financial flows and frustrate their clients’ would-be excellent safari experiences.

Uganda’s fuel prices are the highest in East Africa at Shs 4,590 per litre followed by Burundi’s Shs 4,290. Tanzania has the lowest price of Shs 3,780 per litre, Rwanda Shs 4,060, and Kenya, Shs 4,180.

Economy stuck

Fuel is a key economy driver. Most services and goods depend on fuel. A company like Mukwano Group has more than 150 trucks which ply long routes across the country.

A small shift in the fuel prices, especially upwards, will increase the cost of goods produced.

The dilemma now is not only the hiking of fuel prices but also the unavailability of fuel itself. This means that Mukwano stores and warehouses are full of goods because trucks are grounded, definitely not because of mechanical conditions but lack of fuel.

This is a similar scenario for all other manufacturers.

Some hospitals, schools, industries, salons, and other commercial entities, especially in the northern part of the country, use generators as the fallback position in cases of interrupted main grid power supply. The Northern region, especially West Nile, has always had unreliable power in terms of supply stability. With no fuel, this region must be stuck completely.

This means that the cost of living is high up and the social services provision is very impaired.

Ripple Effect of Increased Costs of Freight

When the price of fuel goes up, carriers are required to increase their prices or take some losses. The rising costs of fuel creates a ripple effect in the whole transportation industry in that if it costs more for the freight carrier to transport goods, the shipper is charged more to transport those goods to make up for the increased costs.

Also, if the shipper is charged more to transport, the receiver is consequently charged more to make up for the additional costs.

Users of a specific transportation mode generally respond to higher prices by limiting or rationalizing their usage level. Transport operators, such as airline companies, respond to such changes by reducing the frequency of the flights.

Recently, the Commissioner In-charge of Transport and Safety in the Ministry of Works, Winston Katushabe, quashed the decision of the Association of United Bus Owners to effect new transport fares across the country.

The bus owners say the decision to hike their charges is driven by rising fuel prices which affect the cost of doing business.

Product Inflation

The rising cost of fuel impacts so much more than just the transportation industry. Politics, the environment, globalization, and technological development all face the wrath of inflation both in short term and long term ranges.

These effects typically result in higher costs for shipping products that are time-sensitive or that need refrigeration.

For the case of Uganda, the President, Ministers, and many other leaders have been silent on the matter of fuel but slowly, the effects of rising fuel prices are starting to be felt among individuals beyond the lower and middle income classes.

Some Members of Parliament have decided to ditch their expensive cars for other means of transport that are less intrusive into one’s daily transport expenses. While some are jumping on motorbikes, others have warmed up to the scooters, which consume relatively less fuel.

“I have personally decided to park my car and use a scooter which consumes less fuel,” said Gaffa Mbwatekamwa, Kasambya County Member of Parliament.

Mbwatekamwa noted that it’s high time government used the fuel reserves to provide stability for the country. He also noted that Parliament should debate the matter of the rising fuel prices to come up with a lasting solution.

Changes in Service Areas

When fuel prices are set at a certain level, each mode of transport has an optimum service area – the distance at which it provides cost-effective mobility.

However, since each mode has a different resilience, increased prices can have a significant impact on the cost or distance function. That means that service areas could change based on the increased cost of fuel.

A case in point;  Denes Ssekabira, Katikamu North legislator, pointed out that whereas fuel that goes to the Democratic Republic of Congo (DRC) transits through Uganda, the fuel prices in DRC are still lower than Uganda’s.

Ssekabira noted that the fuel crisis in Uganda is exacerbated by the fact that some big shots in government own oil supplying companies which are not regulated nor monitored by government authorities, meaning they can maximumly exploit consumers during such a crisis.

“It means everything is going to be bought at higher prices with the pinch going to the common Ugandan who uses public transport. Government should come in and help people,” he said.

Meanwhile, motorists are feeling the pinch and have devised different means of copping with the situation and those in the motor transport business are counting losses.

Abdul Nasser Mawa, a taxi driver at Kampala-Wakiso stage, said his fuel expenses have jumped from between shillings 120,000-140,000 to between shilling 140,000- 150,000 which decreases his income.

Michael Kato, a boda-boda cyclist, said a litre of diesel which used to earn him at least shillings 10000, now makes only shillings 7000 “because the passengers have refused to put into consideration the hike in fuel prices.”

Usage Level

As we have seen above, rising fuel costs affect many industries and even more companies. When companies are faced with rising costs, they generally cut back on the frequency of their services. If the price is affecting the usage level, then the affected companies will try to save money whenever they can by reducing the range of services offered and the frequency.

In conclusion, transportation relies on the use of energy. As most transportation modes are reliant on petroleum, a rise in oil prices can have a level of impact over several dimensions of the transport system.