BusinessDay

FMCG firms’ transport costs surge 27% in 6 months

The transportation cost of manufacturing companies, especially the Fast-Moving Consumer Goods (FMCG), has risen by 27 percent to N43.19 billion in the first six months (January-June) of 2022 from N33.79 billion in the same period of 2021, a BusinessDay analysis shows.

In the first half of the year financial statement of five FMCGs companies listed on the Nigerian Exchange Limited (NGX), including Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc and Dangote Sugar Refinery Plc, analysis showed that the amount spent by the companies on transportation cost rose up to N43.19 billion in 2022, up from N33.79 billion, indicating a 27 percent increase.

A breakdown of the analysis from the 2022 half-year financial results shows that year-on-year, the cost of transport for Nestle Plc saw a 20 percent increase over the previous quarter. Additionally, Unilever witnessed a surge of 57.84 percent, Cadbury an increase of 7.62 percent, and Dangote Sugar saw a rise of 27.72 percent.

Akinloye Ayorinde, a financial analyst said the reason for the high cost of transport and logistics is as result of the high cost of diesel.

“The Russian-Ukrainian situation, the crude oil market, and the high cost of diesel are all contributing to the high prices that transport companies are charging the FMCG and the FMCG that distribute their product themselves.”

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Rising transport costs triggered by soaring crude oil prices have increased the cost of marketing and distribution expenses in fast-moving consumer goods (FMCG), which triggered an upward march in prices of most raw materials used by FMCG companies, which chip away their surplus among other administrative costs.

Due to the drop in oil prices and the interruptions brought on by the COVID-19 pandemic, Africa’s largest economy has experienced two recessions during the previous six years. Prior to the pandemic and the Russia-Ukraine crisis, companies repackaged their goods into smaller sachets at lower prices due to strong inflationary pressures, low incomes, and weak purchasing power.

The consumer’s purchasing power has been diminished by contractions. Following the pandemic, these problems have gotten worse because the supply of raw materials has been causing scarcity, leading to a shortage and an increase in price.

“The fundamental cause of the issue is the high cost of agricultural products, whose prices have increased dramatically and led to a shortage of products on the worldwide market, and increase in the products available,” Ayorinde said.

The severity of this trend is reflected in the increased cost of producing consumer goods, which are the most essential commodities used regularly by consumers. These include packaged food, toiletries, beverages, stationery, cleaning and laundry products, plastic goods, and personal care products.

Economic experts say that many manufacturing firms that are yet to recover from the COVID-19 disruptions are facing severe pressures as the Russia-Ukraine crisis rages on. They noted that manufacturers in Africa’s largest economy have suffered production hiccups as the supply of raw materials like wheat became limited and the price of diesel, a major source of energy, surged significantly.

A market survey of some products shows that the prices have increased by 50 percent or more over the last four months. The price of 250grams of Dangote sugar has increased from N100 to N200; while that of 350grams of Nasco cornflakes rose from N700 to N1,300, and Closeup also saw an increase of N550 from N350.

According to the National Bureau of Statistics (NBS), the country’s headline inflation sustained its upward movement as it rose to 19.64 percent in July 2022, the highest since October 2005 compared with 17.38 percent in July 2021.

Transportation costs increased to 17.56 percent on a year-to-year basis from N342.3 in 2021 and showed a 1.61 percent increase on a month-to-month basis.

Rob Kleinjan, finance director at Nigerian Breweries, during the company’s pre-Annual General Meeting media briefing in April specifically highlighted the rising cost of fuel and diesel, which has an impact on the production and distribution process, saying the company will have to review the price of its products upward during the year.

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