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More pain for consumer goods firms as transport costs rise by 27%

More pain for consumer goods firms as transport costs rise by 27%

The rising cost of transportation, linked to the increasing price of diesel is biting hard on manufacturing companies, especially Fast-Moving Consumer Goods (FMCG) as transport costs soared by 27 percent to N81.52 billion in 2022.

BusinessDay analysis of the financial statement of five FMCGs companies showed that the amount spent by the companies on transportation costs rose by 27 percent to N81.52 billion in 2022 from N64.07 billion in 2021.

The firms surveyed include Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc and Dangote Sugar Refinery Plc

“The Russia-Ukraine war is still having an adverse effect on transportation in terms of fuel cost,” Fisayo Ademilua, consumer goods analyst at CardinalStone Partners Limited said.

“Data showed the price of diesel has been rising ever since the war started; most FMCG companies use diesel-powered vehicles, the rise in the price of diesel led to an increase in their transportation costs,” Ademilaua said.

Further breakdown NASCON recorded the highest increase in the cost of transport with an 83.9 percent increase to N12.3 billion in 2022 from N6.69 billion recorded in the previous year while Nestle Plc saw a 19.19 percent increase to N57.33 billion.

Unilever witnessed a surge of 44.57 percent, of N4.8 billion from N3.32 billion, Cadbury an increase of 25.49 percent of N6.35 billion from N5.06 billion, and Dangote Sugar saw a decline of 18.21 percent of 741.4 million from 906.5 million recorded in the previous year.

According to Ayodeji Ajilore, an investment manager at ARM Investment Managers, the effect of the Russia-Ukraine war continues to reverberate across the world.

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He noted that the story is not in any way different in Nigeria, “as its implication is being felt in transportation costs and all areas of logistics for businesses”.

“It observed that even though output for most of these firms dipped in the period, transportation costs still came in higher,” Ajilore said.

Findings showed the cost of marketing and distributing fast-moving consumer goods (FMCG) has gone up as a result of growing transportation expenses spurred on by skyrocketing crude oil prices.

Ajilore noted that aside from the war triggering a surge in the cost of crude oil, and consequently, energy costs across the world, it also supported the sustained rally of the USD vis-a-vis monetary policy actions.

“With the strong USD rate, when monetary authorities raise interest rates it has a way of affecting dollar-denominated assets which automatically generates the demand for the dollar.

“Fuel prices, replacement costs, asset depreciation, and the price of heavy-duty vehicles are a few examples that are affected by such policies and exchange rates,” Ajilore said.

According to a report by Cordros Securities on the Nigerian consumer goods sector, some companies have implemented substantial price increases to cushion the impact of higher operating costs, especially food staples producers who implemented more robust price increases due to their products’ essential nature, which makes demand price inelastic.

“Industry players will continue to grapple with the high costs of operations, consequently we expect the price hikes to spur revenue growth and support earnings in 2022, although we remain cautious about the weak demand as consumers down trade or opt for cheaper substitutes,” the report said.