THE EFFECT OF 2023 FUEL PRICE HIKE ON TRANSPORTATION SYSTEM IN NIGERIA: A CASE STUDY OF PEACE MASS TRANSIT

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.