BusinessDay

Rising transport cost affects profits, disrupts value chains

The rising cost of transportation, linked to increasing price of diesel, another recent petrol scarcity moving slowly across the country, depreciating Naira, as well as disruptions from the Russia-Ukraine crisis, is making movement of persons and goods more challenging.

In May 2022, Nigeria’s inflation rate reached 17.7%, the highest level in 11 months. According to a BusinessDay analysis, inflation rose for the fourth month in a row in May.

The transport sector is operating in unstable waters with inflation lingering at around 17.7 percent, as costs skyrocket at an unprecedented rate. Diesel prices have risen about 200 percent in a year, from N220-N240 in March last year to N700-720 per litre.

According to the National Bureau of Statistics, the average price per litre paid by consumers for Automotive Gas Oil (Diesel) climbed to its highest level in the last three months in May. The average retail price of fuel has risen in the last three months, from N539.3 in March to N671.1 in May.

Rising energy costs have pushed up commodity and food prices as companies struggle to power factories, warehouses, and transport both raw materials and completed items.

Itunuoluwa Shonibare, a haulage operator, told BusinessDay that while her business is still able to move consignments for clients, it has impacted the profit on each trip. For instance, if from Apapa to a particular destination, the profit was N150,000, now the business is seeing less than N30,000 profit.

Many firms that deal with the transportation of products and services, as well as those that rely heavily on diesel for production, have seen their costs rise as a result of the rise in oil prices.

Read also: Commuters groan as transport fares rise 50% in Lagos

The food chain in Nigeria involves farming, transportation, processing, and retailing. However, this food chain gets disrupted due to various factors, which include insecurity, bad roads, and obsolete facilities, amongst others.

According to the IMF, the war has caused a dramatic increase in commodity prices, and economic growth is anticipated to decelerate to 3.8 percent this year. Nigeria is projected to have a 3.4 percent in growth by 2022, a decrease from 3.6 in 2021.

In addition, NBS data also showed the cost of transportation in Nigeria through various modes increased on a monthly basis in the first three months of the year, owing to the influence of rising fuel prices during that time.

As of April, petrol prices, soared more than 100 percent as the scarcity sent the prices soaring from the officiate price range of N162-N165 per litre to about N400 per litre in some filling stations and N450-N500 per litre at black market outlets.

Before, the economy class fares for domestic flights hovered between N30,000 to N35,000, but in February, airlines raised the base fare for domestic economy flight tickets to N50,000.

This is the fourth consecutive month of rising inflation, alongside supply chain interruptions, and many ongoing crises, among other issues.

According to an IMF analysis, Sub-Saharan African countries may face another severe and exogenous shock as a result of the Russia-Ukraine conflict, which has caused a spike in food and fuel costs, endangering the region’s economic prospects.

Nigerians have had to bear a financial burden as a result of the shock, which has had a detrimental influence on the cost of products and services.

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