“Fuel subsidies are gone!” With those words, an otherwise unexciting first speech by President Bola Tinubu soon became a trending topic. While the removal of fuel subsidies was written into law through the Petroleum Industry Act, it was due to happen in June. Bola Tinubu’s announcement may only have pushed the timeline up a couple of weeks, but it prompted a mad rush to fuel stations. The Federal Government has kept fuel prices artificially low for decades—between N25 to N185 per litre. But worsening government finances means that fuel subsidies no longer make financial sense. A BusinessDay report has now confirmed that the new pump prices for fuel will range between N488 to N550 per litre.
While fuel price increases will affect every aspect of the Nigerian economy, the logistics and transportation sector will arguably feel the impact first. Logistics startups that spoke to TechCabal say they will raise prices this week and are preparing for a slowdown in delivery requests in the short term. Emeka Mba-Kalu, the CEO of Sendstack, a Lagos-based logistics startup, told TechCabal that many logistics companies accepted the inevitability of fuel price increases. He said, “Cost of fuel remains in our top two drivers of operating expenses, so we have watched the progression of the fuel subsidy conversation.”
Price increases will be passed on to customers
Mba-Kalu shared that logistics startups will likely respond with a 20-50% increase in delivery prices. The average delivery prices in Lagos range from N1,500 for short distances like Yaba to Ikoyi to N3,000 for deliveries across longer distances like Ikeja to Lekki.
Teniola Olugbode, a Lagos-based entrepreneur who runs Tamak Logistics, told TechCabal that his company is still analysing the situation. “We intend to raise prices on Friday, and at the moment, it feels like we have to double the prices of deliveries along all our existing routes. The new fuel price of N488 per litre means that an input cost has nearly tripled.” Olugbode also admits that a short-term slowdown in order volumes will almost certainly follow price increases.
A short-term slowdown is inevitable
Olugbode told TechCabal, “We expect many customers to pull back at first. There will be an immediate drop in deliveries and requests because people will look for alternatives or think twice about whether they need an item delivered. It’s a position Sendtack’s Mba-Kalu agrees with. According to him, “It is also possible that price-sensitive customers draw back on their demand for logistics services, which would further affect startups. But we can’t say for sure; the next few months will tell.”
In the interim, logistics companies will have to think quickly. Olugbode says that Tamak will start to talk up its bulk-delivery services, which offer lower prices for several deliveries to a particular location. The price hike may also force delivery companies to discontinue same-day deliveries for non-essential items. For now, many companies are still in their strategy rooms debating how to adapt and remain competitive.
For mobility services like Bolt and Uber, prices are already noticeably higher than last week. Both companies are yet to comment on the fuel price increases publicly.
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