Project Materials

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

The logistics industry is constantly affected by fuel price fluctuations. Rapid increases in fuel prices can have a delayed and catastrophic effect on freight management organisations, whereas a quick drop might result in short-term profit gains and a spike in market competitiveness to give consumers with the lowest price.

The transport industry is a fundamental component of globalisation, playing a critical role in daily activities and the economy. During the twentieth century, trade scales shifted from local to global, and the goods transportation system became a worldwide network.

Freight transportation is one of the most important economic activities. Freight transport has grown faster than passenger transport and is likely to continue to do so in the future (Ribeiro et al, 2007).

The three most common modes of transportation for container movement are truck, train, and ship, each with its own set of advantages and disadvantages.

The cost of transportation is an important selection criterion among influential parameters in determining the best mode of transportation for goods shipping.

The main challenge to today’s transport costs is the price of oil. Most means of freight transport continue to rely heavily on expensive and finite fossil fuels, particularly diesel fuel (Russell et al, 2014).

The price of crude oil is the single most important factor influencing diesel fuel retail prices (Noordin et al, 2009). Crude oil as an energy source is an important factor in determining the state of the global economy (McSweeney et al., 2008). Its price variations have an impact on all industrial sectors, both directly and indirectly, including banking, energy, retail, and transportation.

The impact of oil prices on the transport sector is determined by three factors: the relevance of the oil price to the cost of energy used for each transport mode, the extent to which the 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).

Because the sensitivity of transport operating costs to changes in oil prices varies greatly across shipment modes, the oil price has become an important factor in freight mode selection.

Casamassima et al. Noordin et al. (2009) discovered that the sensitivity of fuel costs for road and railway crude oil prices was 40%, however maritime was 100% since marine fuels are exempt from government taxation.

In addition, they assessed the influence of doubling of crude oil price on transport cost of road and rail freight was 10%, while for maritime was 50%.