Soaring pump prices put the squeeze on logistics players

Singapore

AS the Russia-Ukraine war drives up fuel prices, some logistics companies have seen fuel costs rise by a third in just two weeks - with little of this being passed on to customers.

Over the past two weeks, fuel costs have risen about 35 per cent for Masindo Logistic and 30 per cent for DAP Asia Pacific (S). Both firms have mainly fixed-price contracts, forcing them to absorb the rise.

As for other contracts, Eugene Heng, managing director of Masindo Logistic, said: "We can pass on costs to some others, but we can't slap a 30 per cent fuel surcharge on them, or else they will run next door towards cheaper alternatives."

Masindo has about 100 workers and more than 70 vehicles, from small vans and cars to large trucks. Its trucks each make about 5 to 7 round trips a day, and the cost per trip has risen by about S$15. But only about 20 per cent of additional costs can be passed on to customers without fixed contracts.

The fuel hike is a further blow, after the sector has been facing higher manpower costs and labour shortages in the pandemic, said Heng. Fuel ordinarily accounts for about 30 per cent of Masindo's total costs.

"During the pandemic, our labour costs increased by 15 per cent because of manpower shortages," he added. "If the war (in Ukraine) persists, and costs are up for 6 months or more, our margins may break even or may even go into a loss this year."

DAP Asia Pacific (S) director Gina Toh said: "Even if the terms and conditions in the contracts allow us to alter prices, if we passed on additional costs to customers, it might affect our working relationship in the long term. Logistics is a competitive industry."

But the long-term picture could be different: "If the Ukraine war persists, then it is inevitable that higher costs are passed on to customers, including on new contracts."

For clients dealt with on an ad-hoc basis, some price adjustments will be made, but DAP will still have to bear some costs, she added. Fuel accounts for 12 per cent of DAP's fleet department costs.

In contrast, Weload.sg - which has 10 trucks and serves e-commerce clients - has been able to pass on costs, with fuel accounting for only about 10 per cent of lorry operation costs.

Said co-founder Pravesh Hathiramani: "Customers understand that fuel prices are high so we are able to pass on the additional costs fully to them."

"Our overall delivery rates are still cheap because we are able to efficiently deploy our trucks and drivers," he said, attributing this to in-house load-sharing technology which optimises routes. By using less fuel, Weload can offer cheap rates despite higher fuel costs.

According to petrol and diesel price tracker Fuel Kaki updated as of Mar 14, Shell's diesel price has risen 18.2 per cent and 95-octane petrol by 8.4 per cent, since Feb 25.

Other firms are sandwiched elsewhere along the value chain, such as foundation steel solutions supplier Mlion Corporation, which outsources its transportation needs.

Over the past week, many of its transporters have raised rates by at least 20 per cent, citing an inability to break even at previous delivery rates, said Mlion chief executive officer and chairman Eric Leong.

"We have seen our logistics cost rise exponentially in the last few weeks," he said. "The problem with these increases is that we can't pass it on to the customer immediately. This usually takes time, and hence margins do get squeezed."

Vehicle leasing and distribution company Goldbell Group has about 8,500 units of industrial leasing vehicles. Said chief executive officer Arthur Chua: "We do not operate the fleet ourselves, but we anticipate that customers will be impacted which will in turn affect our business indirectly."

Goldbell also acquired electric car-sharing player BlueSG in October 2021. While this business is facing higher electricity costs, the fuel hikes are pushing customers to reflect on the cost of vehicle ownership and "reconsider alternative options available on the market, including car sharing", said Chua.

Cherie Goh, chair of the Singapore Transport Association (STA), expects slower growth and reduced demand in the logistics market as fuel costs keep rising.

"With already slim margins from the mounting cost of hiring - for example in wages and levies - and tightening of hiring policies, the challenges of transport companies are further exacerbated by the rise in fuel cost," she said.

As margins fall, some transport companies are contemplating winding up, she added.

In the long term, logistics businesses must form trusted partnerships and support each other to survive, said DAP's Toh, who is also first deputy chairman of the Singapore Logistics Association (SLA).

"Cutting wages or passing on costs to customers are not sustainable solutions in the long run. Companies must come together to aggregate jobs and boost efficiency," said Toh.

Citing the model of car-pool ride-sharing service GrabShare, Heng said a similar platform could be developed for logistics companies to optimise their resources.

"No truck should be making an empty trip. The only viable way to survive long-term is if companies start working with each other and effectively use resources. Price wars will only lead to the detriment of the industry," Heng said.

Agreeing, Toh suggested that such a common platform for the industry could be handled by a neutral party such as the SLA.

The industry has historically been sceptical of collaboration due to a lack of trust, but mindsets are slowly shifting, Goh noted. "Instead of competing and ultimately earning the lowest margin and bearing the full cost, companies can collaborate to share their costs."

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