Logistics, Food, and Other Sectors Face Financial Strain Due to Surging Fuel and Supply Prices
SINGAPORE: Companies across various industries in Singapore are under increasing pressure as Russia’s invasion of Ukraine disrupts global supply chains and drives up the cost of essential goods, including fuel and key food ingredients.
As one of the world’s largest oil producers, Russia’s actions have caused significant concerns about the stability of global oil supplies, leading to higher fuel prices. This has, in turn, raised operational costs across industries. The conflict has also exacerbated fears regarding the global supply of grains and edible oils, with Russia and Ukraine together accounting for a large portion of the world’s wheat exports and sunflower oil production.
The disruption in trade and government-imposed sanctions have strained logistics systems further, causing delays and increasing the costs for carriers. According to a report by Moody’s Analytics, the global supply chain is under “no reprieve,” with rising freight rates, delivery delays, and import costs expected to persist.
Immediate Impact on Logistics and Transportation
Transport and delivery businesses are among the first to feel the effects of the surge in fuel costs. Higher petrol and diesel prices, which have increased by up to 30% over the past year, now account for up to one-third of operating expenses for small companies, said Ken Ngan, honorary treasurer of the Singapore Logistics Association.
“Due to congestion and delays at ports, logistics companies are being forced to take more trips to ensure timely deliveries,” he added. This issue is compounded by increasing fuel surcharges on air and sea freight, as well as higher insurance premiums related to war risks.
Food manufacturers and distributors are also facing heightened costs, particularly for transporting goods. The rising prices of essential commodities such as wheat and edible oils have put additional strain on the industry. David Tan, president of the Singapore Food Manufacturers’ Association (SFMA), stated that traders are scrambling for alternative sources of wheat from countries like Australia, Canada, and the United States. This has driven prices up, with US wheat futures hitting record highs.
The cost of palm oil, a key ingredient in many food products, has also risen sharply, further impacting manufacturers who rely on it for production. X-Inc, which operates food distributors FoodXervices and GroXers, reported that rising commodity prices are causing cash flow problems for importers and wholesalers.
Rising Costs in Other Sectors
The construction industry is also feeling the pinch, particularly from rising petrol and diesel prices. However, the more significant concern is whether these energy price hikes will drive up the cost of building materials like cement, bricks, and steel. Russia’s role as a major global producer of steel and aluminium has raised concerns about the impact on prices for these materials.
Peh Ke-Pin, general manager of PQ Builders, expressed concern over potential price hikes if manufacturers start factoring in higher energy costs, which could be devastating for small and medium-sized enterprises (SMEs).
The semiconductor industry is also at risk, with shortages of palladium and neon gas—key components in chip production—due to the war. Economists from Maybank Research warned that these shortages could disrupt semiconductor production in Singapore and Malaysia.
Passing on the Costs to Customers
With inflation already putting pressure on businesses, many companies are forced to pass on the higher costs to consumers. “Logistics companies are struggling to absorb the increased fuel and electricity costs. Unfortunately, we have no choice but to temporarily share these cost increases with our clients,” said Mr. Ngan.
Food distributors, dealing with narrow profit margins, are also hiking prices. X-Inc’s CEO Nichol Ng noted that price increases are no longer limited to single-digit percentages but are now reaching as high as 20 to 80 percent. This has led to concerns that the situation, which shows no signs of improvement, will have long-term repercussions for businesses.
Economist Song Seng Wun from CIMB Private Bank added that the lack of visibility on future costs makes it difficult for businesses to plan, affecting overall business confidence.
With no end in sight for these challenges, Singapore’s businesses are bracing for further disruptions and cost increases.
