Retail sector struggles with increasing shipping fees

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FOOD FOR THOUGHT: The effects of high oil prices and correspondingly high costs for shipping are beginning to trickle through to Middle Eastern consumers.

The rising cost of shipping has pushed inflation on retail goods up to "unacceptable" levels, government officials from the United Arab Emirates have warned.

As 3PL shipping companies charge more to their corporate customers to offset the rising cost of oil, the knock-on effects are starting to trickle down to the level of the ordinary consumer, the Abu Dhabi Department of Planning and Economy (DPE) has indicated in a report.

The government study, released last month, found that a 52% increase in the price of fuel was among the main causes of rising transportation costs, which had grown as much as 120% from December to the end of March.

"Rising prices of fuel often weaken the purchasing power of consumers and adversely affect competitiveness of all non-oil sectors, especially tourism, hotels and retail trading sectors," the report said.

Prices of food depend heavily on shipping costs in the UAE, as the country imports 96% of the produce that it consumes, and many retailers have been forced to review prices as demand outstrips supply.

"We at Spinneys do cost our products on a standard costing basis and these costs are reviewed periodically to ascertain any rising costs like shipping and transportation are catered for and not hit the desired margins the company has to achieve," said Muhammed Asif, logistics manager for Spinneys Group Limited.

Many other local supermarkets have capped prices this year for 16 basic food items, including cooking oil, sugar and eggs. But this only came after prices of products such as flour, milk and rice rose as much as 58%, according to Dubai Chamber of Commerce and Industry.

The UAE imported food-related items worth US$8 billion. It exported justS$2.4 billion of its own produce while re-exporting goods worth $1.5 billion.

This discrepancy has led for a call for the country to combat the shortage by investing more in agriculture. However, with the paucity of arable land available in the region, there is doubt about the long-term success of such projects.

In the meantime, transportation companies have had to reinvent themselves as supply chain managers, so that costs from increased shipping rates are offset through savings in other areas of the business model.

"We purchase services from ocean liners and airfreight operators, so once the increases in costs are passed to us, we must increase our prices too," explains Hussein Hachem, Aramex's Middle East CEO.

However, Hachem believes that shipping is only a part of Aramex's complete supply chain package, with increased prices through fuel surcharges eventually being offset through other savings in the long term. "We look at the relationship between our customers and their suppliers to discover methods of optimising profits. This is a benefit of outsourcing such operations to logistics specialists who can work in partnership with customers to reduce supply chain costs and ease the pressure of fuel surcharges."

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