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Wednesday, July 24, 2024

Avoid unsustainable freight rates

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The continued weak rand and more effective sanctioning of Russian oil buyers during March are putting more pressure on diesel prices, which means truckers can be expected to pay even more for diesel in April.

The expected diesel price rises come in the wake of steep increases of R1,44/ℓ for 500ppm and R1,58/ℓ for 50ppm in March.

Gavin Kelly, CEO of the Road Freight Association warned that logistics companies will again have to increase their transport rates to cover the rising costs of fuel, which will again lead to a long line of price increases affecting all consumers.

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Higher fuel cost leads to rates wars

Remind Masiko, founder of SA Trucker, said steeper prices would see many truck operators undercutting their competitors’ rates, the smaller operators doing so to get business, and bigger operators doing so to remove their smaller competitors.

Masiko said while the freight market has always been cut-throat, operators should realise they are only hurting their business when they undercut the competitors with rates that are not sustainable.

An SA Trucker survey revealed that R30/km can keep a small operator in business to pay for an in-house diesel mechanic and a fleet operator to plan routes and loads. 

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But this rate is often undercut by more than 50%, with some fly-by-night operators running at R12/km. 

“These are the operators that work their drivers to death, literally, because they have to do the Durban-Joburg run daily just to pay for the last trip, getting little sleep and generating no income over diesel and toll costs,” Masiko said.

“Discounting your own demise”

The same cut-throat competition applies to grain trucks.

In South Africa, 75% of national grains and oilseeds are sent from silos to millers by trucks. SA Trucker’s survey shows a well-run agri-business with its own fleet charges around R250 per ton. 

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Masiko said this was a rate with paper-thin margins and operators who undercut this price are discounting their own demise.

Masiko said higher diesel prices always lead to fewer driving jobs, either because businesses are saving money by consolidating loads or because smaller businesses go bankrupt.

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