Make hay while the sun shines
Anyone, in any business, will tell you that today’s trading conditions are tough. For those in the transport business, fuel prices are among the most critical aspects to their profitability. With the lower oil prices in mind, Standard Bank has issued some advice to take advantage of the favourable situation.
“The fuel price reprieve shouldn’t alter core strategies – it is only one input cost and businesses should not bank on it. They should rather use it as a way of building up their resources,” says Karl Gotte, head of customer financial solutions at Standard Bank’s Commercial Banking division.
“Businesses should see that they do something sustainable with these savings going forward. The opportunity won’t last forever – we’ve already seen petrol prices going up,” Gotte adds.
In the case of transport, the company says there is also a risk of lost contracts for those that were moving resources, as lower commodity prices place pressure on many suppliers, who are themselves under significant pressure to cut costs.
“It depends on what you are moving. Also, when combined with the higher taxes, any future increase in oil prices obviously sees these benefits dissipate very quickly. Oil prices won’t remain low forever, so we are seeing more demand for hedging in an effort to lock in lower prices,” says Gotte.
Other tips include using savings to invest in generators so as to be less reliant on the country’s strained power supply system. It’s also advised that businesses consider diversifying and achieving more operational agility to survive the tougher conditions, for example, establishing strategic relationships with other businesses.
“Increasingly, businesses need to act quickly, like reducing costs in the short term while still being faster than their competitors to market. The single largest driver of this has been shown by shifting resources like people, cash and even production facilities,” says Gotte.
Indeed, the economic environment remains tough. “There are headwinds, but it’s just a bit better than anticipated six months ago,” Gotte notes, warning against future risks. These include electricity price increases as well as an upward rebalance in the price of oil.
Exporting manufacturers will be better off with the rand depreciating, while importers could be faced with higher prices.
“This would have been even worse if it weren’t for a bit of a benefit on oil. Lower petrol prices will help certain sections of the transport sector, for example. The ones that stand out would be the courier and logistics markets, but it must be remembered that the fuel and the road accident fund levies have both increased. So, while savings from fuel usage would have been seen, the majority of that benefit will be chewed up quite quickly by the higher levies,” concludes Gotte.