THE EFFECT OF 2021 FUEL PRICE HIKE ON TRANSPORTATION SYSTEM IN NIGERIA

(A CASE STUDY OF ASCENT TRANSPORT COMPANY (ATM), ABUJA)

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Price fluctuation in the market for fuel has a constantly evolving effect on the logistics industry. 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.

One of the major components of globalization is the transportation sector, which plays a very significant role in daily activities and the economy. During the 20th century, trade scale changed from local to global and therefore freight transport system became a global network. In particular, freight transportation is one of the most important economic activities. Freight transport has been growing even more rapidly than passenger transport and is expected to continue to do so in the future (Ribeiro et al, 2007). Truck, train, and ship are the three common transport vehicles being used for movement of containers, which are characterized by a number of advantages and disadvantages. The cost of transportation is an important selection criterion among influential parameters on identifying the appropriate mode of transportation mode for freight shipment. The main challenge of today’s transport costs is oil price. Freight movement in most modes remains largely dependent on expensive and finite fossil fuels, predominantly diesel fuel (Russell et al, 2014). The foremost single factor affecting the retail price of diesel fuel is the price of crude oil (Noordin et al, 2009). Crude oil as an energy source is a vital component that determines the condition of the world economy (McSweeney et al, 2008). Its price fluctuations impact on all industrial sectors whether directly or indirectly, be it in banking, energy, retailing or transportation industries. The impact of oil prices on transport sector depends upon three issues, which are, the relevance of the oil price on the cost of the energy used for each transport mode, to what extent oil price is transferred to transport fuel prices, and the relative weight of the energy cost on total operating costs for each mode (Casamassima et al, 2009). Fuel prices are a cost to transportation industries and a direct cost to consumers. Fuel price is one of the most important factors affecting transport cost, which comprises more than 50 percent of the total operating cost for the transportation industry nowadays (Ribeiro et al, 2007). Since the sensitivity of transport operating cost to the oil price change varies significantly across shipment modes, the oil price has become an important factor in freight mode choices. Casamassima et al. Noordin et al, (2009) revealed that the sensitivity of fuel costs of road mode and railway crude oil price was 40%, while maritime was 100% since marine fuels are exempted from government taxation. In addition, they estimated the influence of doubling of crude oil price on transport cost of road and rail freight was 10%, while for maritime was 50%.

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. It 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.

1.2 Statement of the problem

The Petroleum Products Pricing Regulatory Agency (PPPRA) announced on Thursday 11th March, 2021 that the Nigerian government has increased the pump price of petrol to N212.61 per litre. According to the agency, the landing cost stands at N189.61 per litre while fuel depot owners will sell to marketers at N206.42, (Premium Times reports).

This announcement comes days after Nigerians suspected there would be a hike in fuel price as depot owners were reportedly hoarding the product, and increasing prices with expectations of fuel price increment by the government, even though the NNPC responded to the speculations via a statement by its Group General Manager, Group Public Affairs Division, Kennie Obateru.

As the price of fuel increases, other basic needs of Nigerians including transportation and the cost of goods and services, to name a few, are also expected to increase in price, making it more difficult for the average citizen to afford food and other basic needs, especially without any increase in their income.

Nigerians have since taken to social media with the hagtag #FuelPriceHike to object to the decision, with several people calling for a protest in Ojota, Lagos State. Many Nigerians on there social media pages have been complaining that Nigeria no longer use coins and with the increase of fuel price to N212.61 per litre, how would they be able to get their balance when ever they purchase petrol. In 1978, fuel price per liter was 0.5 kobo. Today, #FuelPriceHike is a major problem to the Nigeria’s economy especially for an average Nigerian. Hence, this study seeks to investigate the effect of 2021 fuel price hike on transportation system in Nigeria.

1.3 Objective of the study

The main purpose of this study is to investigate the effect of fuel price hike on transportation system in Nigeria using Ascent Transport Company (ATM), Abuja as a case study. The study specifically aimed to:

1. Examine the effect of fuel price hike on passengers of ATM, Abuja.

2. Investigate the effect of fuel price hike on the profitability of ATM, Abuja.

1.4 Research Questions

1. What is the effect of fuel price hike on passengers of ATM, Abuja?

2. What is the effect of fuel price hike on the profitability of ATM, Abuja?

1.5 Research hypotheses

The following null hypothesis will be tested in this study:

Fuel price hike does not have any effect on passengers of ATM, Abuja

Fuel price hike does not have any effect on the profitability of ATM, Abuja

1.6 Significance of the study

This study will enable the government of Nigeria to see the need to put measures in place to subsidize fuel in the country and avoid unnecessary hiking of the fuel price. This study will also help transport companies to draft a good strategy and mechanism to always curb the fuel hike issues in the nearest future. 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. This study will also serve as a reference piece for future research on this or related domain.

1.7 Scope of the study

This study will focus on investigating the effect of fuel price hike on passengers of ATM, Abuja. This study will also examine the effect of fuel price hike on the profitability of ATM, Abuja. This study will be delimited to only the staffs of ATM, Abuja.

1.8 Limitation of the study

Finance, availability of time and relevant materials were the major constraints that the researcher encountered while carrying out this study.

1.9 Definition of terms

Effect: a change which is a result or consequence of an action or other cause.

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.

References

Ribeiro, S. K., Kobayashi, S., Beuthe, M., Gasca, J., Greene, D., Lee, D., et al., Climate Change (2007): Mitigation. The contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. In Transport and its Infrastructure, ed Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2007.

Russell, D., Coyle, J. J., Ruamsook, K., Evelyn, A, The Real Impact of High Transportation Costs. Supply Chain Quarterly, Quarter 1. (2014). Retrieved from http://www.tandf.co.uk/ journals/authors/style/reference/tf_APA.pdf.

Noordin, N. S. S., Oil Price Shock and Malaysian Sectoral Stock Market Return. Doctoral Dissertation, University of Malaya. (2009). Retrieved from http://repository.um.edu. my/889/1/Syahira%20-%20MBA.pdf.

U.S. Energy Information Administration, Factors Affecting Diesel Prices. (2017). Retrieved from https://www.eia.gov/energy explained/index.cfm?page=diesel_factors_affe cting_prices.

McSweeney, E. J., and Worthington, A. C., A Comparative Analysis of Oil as a Risk Factor in Australian Industry Stock Returns, 1980- 2006’ (2008), Studies in Economics and Finance, Vol. 25, pp.131-145.

Casamassima, G., Fiorello, D., and Martino, A., The Impact of Oil Prices Fluctuations on Transport and Its Related Sectors. European Parliament. (2009). Retrieved from http://publications.europa.eu/resource/cellar/5 9b332d0-6bd2-4999-8fd6-6f939ab7d1f7. 0001. 02/DOC_1.

Transportation Economics and Management Systems (TEMS) Inc., Impact of High Oil Prices on Freight Transportation: Modal Shift Potential in Five Corridors. (2008). Retrieved from https://www.marad.dot.gov/wp-content/ uploads/pdf/Modal_Shift_Study_-_Technical _Report.pdf

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