AN EXAMINATION OF PETROL PRICE HIKE ON LOGISTIC INDUSTRY IN NIGERIA.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

            The relevance of logistics management has grown in different fields since the 1950s, thanks to the trend of nationalization and globalization in recent decades. Janic, (2017) explained that for industries, logistics aids in the optimization of current production and distribution processes based on the same resources using management strategies aimed at increasing organizational efficiency and competitiveness. The transportation system, which connects the disparate operations in a logistics chain, is the most important component. Transportation accounts for one-third of logistics expenditures, and transportation systems have a significant impact on logistics system performance. From manufacture through distribution to ultimate consumers and returns, transportation is essential throughout the production process( Kilian, and Hicks,  2013). The advantages could only be maximized if each component was well-coordinated. In order to satisfy consumers' requirements, part of the supply chain process that plans, implements, and regulates the efficient, effective forward and reverse movement and storage of products, services, and associated information between the point of origin and the site of consumption. 

 The complete process of materials and goods going into, through, and out of a business is described here. The transfer of material received from suppliers is referred to as inbound logistics. The flow of materials and components throughout a company is referred to as materials management. The movement of goods outward from the end of the assembly line to the customer is referred to as physical distribution. The biggest difficulty of today's transportation expenses, however, is the price of oil. Most modes of freight transportation are still reliant on expensive and finite fossil fuels, primarily diesel fuel (Russell, Coyle, Ruamsook, Evelyn, 2014).

Furthermore,  De Borger, & Mulalic, (2012) opined that when the price of crude oil is the single most important factor influencing the retail price of diesel fuel. Crude oil, as an energy supply, is a critical factor in determining the state of the global economy. Its price variations have a direct or indirect influence on all industrial sectors, including finance, energy, retailing, and transportation.The impact of oil prices on the transportation sector is determined by three factors: the relevance of oil prices on the cost of energy used for each mode of transportation, the extent to which oil prices are transferred to transport fuel prices, and the relative weight of energy costs on total operating costs for each mode.

According to  Eyefortransport (2008), Increased fuel prices provide a dilemma for freight management firms, as rising costs often cause carriers to hike rates or lose money. When carriers raise rates, the increase is passed on to the customer in the form of increased products prices and higher transportation expenses. Increased prices have a knock-on impact across the economy. The eyefortransport report asserts that higher energy costs are reflected in official inflation statistics, which impacts Federal Reserve policy and, eventually, interest rates, by driving up prices of important consumer items. Higher inflation and interest rates, ironically, have an inverse connection with prices, which means that higher gasoline prices eventually impact variables that lead prices to fall. Notably, higher prices are not perceived in the same way everywhere over the world, which can cause trade flows to diverge and push logistics businesses to change their tactics. When oil prices are high, for example, some nations particularly those in emerging economies - subsidize oil prices to keep energy costs down for domestic producers. This can artificially boost exports from nations with low energy costs that would not otherwise be market leaders.

1.2         Statement of the problem

Price fluctuation in the market for fuel has a constantly evolving effect on the logistics industry and the volatility keeps the logistics industry on its toes. Janic (2017) observed that rapid increases in the price for fuel can have a delayed and devastating effect on freight management companies, and a sudden fall could result in short-term boosts in profit and a surge of competition within the market to provide consumers with the lowest price. According to Kilian, et’al (2013) explained that  as the cost of fuel rises, carriers are forced to raise prices or take losses. In turn, the cost of fuel does not only effect the logistics company, but also the shipper and the profit source of the shipper as well.

Notably, Martino, (2019) aaserts that hike in furle price is an outward domino effect: If it costs more for the freight carrier to transport the freight, the shipper is going to be charged more to make up for this. If the shipper is going to be charged more to transport the freight, the receiver is going to be charged more to make up for their added costs. For example in the case of  Nigeria, when there is a petrol hike price, products are going to be sold to consumers at higher costs to make up for the higher transportation and fuel costs. Additionally, higher fuel costs cause product inflation, and affect every aspect of production transportation along the way.

More so as pointed out by  Evelyn et’al (2019), higher energy costs bring higher interest costs for those dealing in energy products. This can be a double whammy for logistics companies with extended credit terms, who not only face higher fuel costs but also extended credit terms. Since fuel is a top operating expense for most logistics companies, this can be a significant additional cost.While the impact of fuel price hike has been generally studied non has looked inwardly to logistics sector which necissitated this study. Therefore it is upon this premise that this study seeks to present an examination of petrol price hike on logistic industry in Nigeria.

1.3       Objective of the study

The broad objective of this study is to examination of petrol price hike on logistic industry in Nigeria. Specifically, the study will:

1.  Investigate if the rise in petrol price would lead to increase on  cost of containers shipment by truck, train, and ship in intermodal transport.

2. Determine if increment in petrol price would affect  the average length of haul and  share of loaded trips in Logistics industry.

3.  Access if increment in petrol price would have any significant effect on capacity utilization of trucks and trucking operations.

1.4       Research Hypothesis

HO1: Rise in petrol price does not have any impact on  cost of containers shipment by intermodal transport.

HO2 : Increment in petrol price does not have any significant effect on capacity utilization of trucks and trucking operations

1.5       Significance of the study

Findings of the study will be relevant to government as it would provide with framework on making informed decisions concerning  the need to retain fuel subsidy while expediting the construction of the three proposed refineries, rehabilitate  the existing refineries and as well embark on full deregulation of fuel prices to ensure market competitiveness. This study will also help logistics industries  to draft  good strategies and mechanisms to mitigate challenges that comes with petrol price even as they ensure maximum truck utilization and intermodal transportation services. This study will further serve as an eye-opener to the general public to know that when ever there is a fuel hike in the country, transportation tends to be expensive. Empirically, thee study would add to the body of existing literature on this subject and serve as a reference material to both scholars and student who wishes to conduct further studies in related field.

1.6       Scope of the Study

The scope of this study borders on  an examination of petrol price hike on logistic industry. It will determine if increment in petrol price would affect  the average length of haul and  share of loaded trips in Logistics industry and assess if increment in petrol price would have any significant effect on capacity utilization of trucks and trucking operations. The study is however delimited to MAERSK integrated logistics company, Ikeja Lagos.

1.7       Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited  as few respondent were selected to answer the research instrument hence cannot be generalize to other sector of the economy. However, despite the constraint  encountered during the  research, all factors were downplayed in other to give the best and make the research successful.

1.8       Definition of terms

Price Hike:  a sudden or large increase in prices, rates, taxes, or quantities.

Transportation: transportation is the movement of humans, animals and goods from one location to another

Petrol:Petroleum is a versatile fossil fuel that can be refined into many different products. Common examples include gasoline, kerosene, fuel oil, and lubricating oil

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