Like many businesses across Nigeria, last-mile delivery companies are feeling the impact of the recent surge in fuel prices, forcing them to reevaluate their pricing strategies to maintain operations. As inflation continues to squeeze margins, logistics providers are now faced with the difficult task of balancing price adjustments while retaining a price-sensitive customer base.
In an email to its customers, health-tech startup Remedial Health acknowledged the challenge, stating, “In light of the current economic conditions, particularly the significant rise in fuel prices, we find it necessary to make an adjustment to our delivery process.” This sentiment is echoed across the logistics industry, where several companies have already made or are planning to implement price hikes.
Price Increases Across the Board
Among the companies raising prices is Fez Delivery, which previously charged ₦2,500 ($1.52) for deliveries weighing between 0 and 5kg. With fuel prices surging, the company has raised this rate by 23%, meaning the same delivery now costs ₦3,075 ($1.88). Seun Alley, Fez Delivery’s CEO, explained the delicate balancing act involved in increasing prices, saying, “Our prices definitely have to change. But what we want to do is to ease our clients into that phase. So, at the moment, we are taking serious blows to keep operations running.”
Fez Delivery is not alone. Several other logistics companies, such as Gokada and Remedial Health, have either raised prices or are considering similar adjustments. Seun Omotosho, COO of Gokada, pointed out the price sensitivity of customers, noting that, “Depending on the urgency, some customers don’t mind going for the least priced service when items are not needed urgently.”
Impact on SMEs and Customers
The increased delivery costs are not just affecting logistics companies but are also placing strain on small businesses and regular customers. Many customers are now turning to alternative methods of delivery. For instance, Olawale, an online vendor of phones and gadgets, has resorted to using public transportation to avoid the steep rise in courier costs. He shared his experience with TechCabal, noting that DHL’s prices for shipping phones have risen from ₦12,000 to ₦14,000, and for laptops, from ₦12,000 or ₦13,000 to as high as ₦21,000.
For small businesses, these rising costs represent a significant operational hurdle. Many companies are also finding it difficult to pass these costs onto consumers without losing them. While the logistics industry in Nigeria is known for its thin margins, customer loyalty is now being tested as businesses weigh the need for price adjustments with retaining a competitive edge.
Incentives and Electric Vehicles: Searching for Solutions
In an effort to ease the burden on customers and maintain business volumes, some delivery companies are offering incentives to their riders and discounts to top customers. By encouraging riders to complete more orders and offering performance-based bonuses, companies are attempting to manage increased operational costs while keeping riders motivated.