South Africa Economic Outlook - November 2023
PwC forecasts that fuel price declines could bottom out in 2024Q1, followed by a slow upward trend as the year progresses
PwC South Africa is pleased to share its eleventh and final South Africa Economic Outlook report for 2023.
As motorists head off for the upcoming year-end holidays, and businesses move more goods during the festive shopping season, fuel prices eased in November and are expected to decline further in December. Still, petrol and diesel are currently 22% and 41% more expensive, respectively, compared to two years ago. Fuel prices have been among the largest drivers (alongside food and electricity costs) of consumer price inflation over the past 24 months.
A decline in global oil prices and a strengthening in the rand supported an easing in local fuel prices following the 15-month highs seen in October. PwC’s forecasts suggest that fuel prices should, on average, be lower in the first three months of 2024 compared to the current quarter. We estimate that the petrol price could decline from an average of R24.13/litre in 2023Q4 to a forecasted R23.02/litre in 2024Q1, while diesel could ease from an estimated R23.72/litre to a forecasted R21.21/litre.
“Following the fuel price declines in November and December 2023, both petrol and diesel prices are expected to bottom out in 2024Q1, and then slowly increase during the remaining quarters of 2024. This is based on expectations in financial markets that the depreciation in the rand exchange rate during 2024 will be slightly faster than an anticipated decline in global oil prices.”
Our forecast model indicates that petrol could cost an average of 0.6% more in 2024 at R23.24/litre compared to an estimated R23.10/litre in 2023. Diesel is projected to cost 0.6% less at R21.40/litre compared to an estimated R21.54/litre in 2023. This is relatively good news, when considering an average consumer price inflation forecast of 5.2% for 2024.
Nonetheless, these below-inflation forecasts will bring little relief to fuel users considering that petrol and diesel prices have doubled over the past seven years. South Africa consumes 60 million litres of petrol and diesel every day, costing R1.4bn daily. Transport — including the purchase of vehicles, private transport operation (fuel and other running costs) and public transport — account for 14.4% of the benchmark consumer basket.
There is a process underway in government involving the National Treasury and the Department of Mineral Resources and Energy to review the structure of fuel prices. However, the latest Operation Vulindlela progress report notes that reviewing and adjusting the pricing formula is “facing significant challenges”, without elaborating further.
Until such time as a more formal announcement is made on restructuring fuel prices, there will be many perspectives on what exactly could be done. The South African Reserve Bank (SARB), for instance, reported in an August 2023 publication that it has identified seven elements within the fuel price that could be considered for reform. The two reforms they view to offer the most significant benefits are: 1) a review of the Road Accident Fund (RAF) and 2) the shift to a maximum petrol price.
“There are options on the table for a pricing formula review and even a small downward adjustment in fuel costs could have a meaningful positive impact on business operational costs and household consumption budgets. Nonetheless, with fuel prices rising over the medium- to long-term, local businesses need to implement appropriate strategies to save on the volume of fuel used in their transport fleets and manage operating costs.”
Considering the reported challenges on reforming the fuel price methodology and the prospect of no further decline in fuel prices heading into 2024, it is incumbent on South African businesses to implement actionable strategies to reduce their fleet fuel consumption.
“There are many reasons why South African companies should reduce their fuel consumption, ranging from financial benefits to environmental considerations. Optimising hardware and software elements within the logistics function, and improving strategic planning throughout the supply chain, could reduce the volume and overall cost of fuel consumption. This can ultimately benefit many stakeholders, including customers benefiting from lower transport costs, and a reduction of emissions across the value chain.”
From an environmental perspective, reducing emissions is also a climate change imperative. Companies’ supply chain emissions often dwarf the carbon impact of direct operations. For most companies, supply chain emissions account for between 65% and 95% of their total carbon impact. These are the so-called Scope 2 and Scope 3 indirect emissions due to company operations but emanating from activities not owned or controlled by the enterprises.
In this report, PwC explores seven options that would have a (varying) positive impact on fleet fuel consumption and emissions, namely:
- Load planning and optimisation: It is essential to make the best use of available cargo space as transporting air (i.e., having empty space in trucks) is inefficient. Load building software can accurately consolidate outbound customer orders into loads that utilise the maximum carrying capacity of the transport fleet and thereby reduce deadhead loads or partially full cargoes.
- Route optimisation: In urban settings in particular, choosing the optimal route can reduce travel duration and cost. Route optimisation aims to achieve all planned deliveries within the allowable time window, with the available fleet, and by travelling the shortest or fastest routes possible.
- Scheduling of logistics: An optimal route in terms of cost and fuel consumption is highly dependent on the time of day that route is taken. Driving at night — when roads are emptier compared to during the day — saves them fuel and reduces CO2 emissions by reducing idling, accelerating, and decelerating.
- Cold chain management: Aside from the fuel needed to power the movement of trucks, energy is also consumed to refrigerate cargo areas when cooling is needed. Options to reduce diesel usage of cooling include solar- or nitrogen-based cooling systems, the use of strip curtains or box compartments to prevent loss of cool air, and off-the-shelf temperature monitoring equipment and software.
- Driver monitoring and training: The human element is another important component of logistics alongside hardware and software assets. Drive training moulds driving habits like accelerating and braking which reduces direct fuel usage while also lowering mechanical wear and tear.
- Electrified powertrains: There has also been an increase in the number of Original Equipment Manufacturers (OEMs) investing in hybrid technology for commercial vehicles, incorporating electric motors into the overall drivetrain design for use at vehicle pull-off and low speeds. Some companies are even moving to electric-only commercial vehicles to completely abandon the need to fill up at fuel pumps.
- Partnerships with fuel suppliers: Petrochemical companies have a vested interest in building long-term relationships with large clients. This could, ironically, be cemented by providing clients with resources that could make their fleets more fuel efficient. Fuel suppliers can offer a range of products that could improve fuel efficiency, including lubricants, engine cleaners, custom fuel blends, and corrosion inhibitors, among others.
Key content in this report includes:
- Energy consumption trends: Transport represents 14.4% of the consumer spending basket.
- Petrol and diesel price forecasts: Recent declines should bottom out in 2024Q1, followed by a slow upward trend thereafter.
- Pricing formula review: SARB identifies seven areas of possible reform to lower fuel prices.
- Reducing fleet fuel consumption: Seven actionable strategies to improve logistics planning and transport decisions.
- How PwC assists our clients to respond to the evolving transport and logistics environment.
