Diesel price shock to ripple through economy despite fuel levy relief

A sharp increase of more than R7 increase in diesel price has sparked widespread concern across South Africa’s transport, logistics and agricultural sectors, with industry leaders warning of rising costs, higher inflation and reduced economic competitiveness.

The increase, which came into effect on Wednesday, saw diesel prices jump by as much as R7.51 per litre. While government moved to cushion the blow through a R3 reduction in the general fuel levy, industry players say the relief falls short of offsetting the scale of the increase.

Tonny Molise, deputy president of the Trucking Association of SA (Tasa), said the hike would place severe pressure on transport operators. Fuel is one of the largest cost components in road freight, and such a sharp increase is expected to squeeze already thin margins.

“It is important to be clear that without this intervention, the situation would have been far worse for the industry," he said.

"However, even with this relief, the current increase will still have a substantial negative impact and will likely translate into higher transport and logistics costs, which will ultimately be passed on to businesses and consumers.”

Molise added that the situation highlights the need for a more proactive and strategic approach from government to support critical sectors such as transport, which underpin economic activity.

Malcolm Hartwell, head of transport at Deneys and Master Mariner, said fuel typically accounts for between 30% and 35% of trucking costs, but can exceed 50% in periods of elevated prices.

“This is a direct cost that immediately comes off the bottom line of any company in the logistics sector," he said.

"Inevitably, this increase in costs will have to be passed onto the consumer, which in turn will reduce demand across every sector and will no doubt have an impact on the profitability of all businesses that rely on logistics to deliver their products and services.”

Hartwell warned that the impact would not be limited to domestic transport.

With global shipping routes already under strain due to ongoing tensions in the Arabian Gulf and the continued closure of the Strait of Hormuz, fuel costs are also surging in maritime transport. In shipping, fuel can account for up to 60% of operating costs, further driving up the cost of international trade.

“Whether the reduction is sustainable in the medium to long term is not clear, but this does mean that the fiscus, which is already facing huge demands from every sector, will have to find that money somewhere else.”

Gavin Kelly, CEO of the Road Freight Association, said that for the road freight industry, the daily basic diesel cost rose by 32.5%, putting immense pressure on the sector.

"Road freight operators are under immense pressure. There are no guarantees that clients will pay the new transport rates - and transporters are in the business of making money, not in the business of making a loss," Kelly said.

"Consumers will start feeling the pinch of high fuel prices within a couple of weeks - and fuller impact will filter through towards the end of April. The spectre of further fuel increases remains a reality and threat to all operators."

Dave Logan, CEO of the SA Freight and Logistics Association, said these fuel movements are a loud and immediate reminder that when corridors stall, the cost doesn’t just show up in delayed containers.

"It shows up in litres burned, in higher transport inflation, and in reduced competitiveness for South African trade," he said.

Economists are also raising red flags. Koketso Mano, FNB senior economist, expects a sharp spike in fuel inflation in April, forecasting an increase of nearly 20% month-on-month and more than 10% year-on-year.

Headline inflation could peak at around 4%, with the annual average exceeding 3.5%.

“We will likely need at least another month of tax relief, as was the case in 2022, but this relief is costly, and the government may have to reduce the exact figure should the war rage on," she said.

“In a nutshell, higher inflation begets higher interest rates, and rate cuts will continue to be pushed out as long as the inflationary impact is concentrated, but hikes will be on the cards as soon as evidence of material second-round effects abounds.” 

BUSINESS REPORT