With operating costs surging, delivery companies are left with the challenge of balancing price hikes while retaining price-sensitive customers. As businesses struggle to adapt, a number of logistics companies are beginning to adjust their pricing models.

Remedial Health, a health-tech startup supplying medications to pharmacies, has been among the first to respond to these economic changes. In an email to its customers, the company highlighted the necessity of revising its delivery processes due to costly fuel prices. 

Similar changes are occurring across the industry, with several logistics companies adjusting their rates or preparing to do so. Fez Delivery, for example, has announced a 23% price increase, with the cost of deliveries between 0 and 5kg rising from ₦2,500 to ₦3,075. This change, while essential for business survival, is a tough pill to swallow for both the company and its customers.

Seun Alley, CEO of Fez Delivery, acknowledged the difficulty in implementing these changes: “Our prices definitely have to change. But what we want to do is to ease our clients into that phase. At the moment, we are taking serious blows to keep operations running.”

The rising cost of logistics is squeezing last-mile delivery services, many of which operate on thin margins. However, navigating these changes is a delicate balancing act. 

On one hand, companies must raise prices to remain operational, while on the other, they risk losing customers who are highly sensitive to cost fluctuations. According to Seun Omotosho, COO of Gokada, customers often opt for cheaper delivery options when urgency isn’t a factor, adding another layer of complexity to pricing decisions.

For smaller businesses, the situation is even worse. Olawale, an online phone and gadgets vendor, described how he has shifted to using public transport to deliver his goods after delivery services like DHL increased their prices significantly—from ₦12,000 to ₦14,000 for phones, and for laptops, from ₦12,000 to ₦21,000. 

This sharp rise has pushed many entrepreneurs to explore alternative, cost-effective ways of ensuring their products reach customers.

In response to these pressures, some delivery companies are exploring incentives and discounts to retain their customer base. In offering riders bonuses based on the number of completed orders or providing discounts to frequent customers, companies aim to mitigate the impact of rising costs. 

Others are looking further ahead, with a focus on electric vehicles (EVs) as a prospective long-term solution to the fuel price dilemma. While the adoption of EVs in Nigeria may still be a few years away, companies are optimistic that they could help reduce operating costs and stabilise delivery pricing in the future.

The issue of fuel price increases has also prompted discussions about how businesses in Nigeria can innovate to remain viable in an increasingly challenging economic climate. 

Across various sectors, companies are experimenting with new strategies to absorb costs without losing customers. For example, some industries are leveraging digital platforms to simplify operations and reduce overhead costs, while others are shifting to more sustainable business models.

Similar challenges are being faced globally. In other African countries, last-mile delivery companies are dealing with rising costs due to fuel price hikes and inflation. In Kenya, for instance, logistics companies are looking into expanding their fleets with electric motorcycles to cut down on fuel expenses. 

The move towards electric vehicles is gaining traction in other regions too, as companies strive to reduce their reliance on fossil fuels and explore greener, more cost-effective alternatives.

Ultimately, the ability of Nigerian last-mile delivery companies to weather the storm will depend on their flexibility in adjusting to these economic issues. 

Whether through gradual price increases, customer incentives, or long-term investments in sustainable technologies, the industry will need to adapt if it hopes to remain competitive.

The seed round, which will also enable the startup improve its technology to enhance efficiency, as well as hire more talent and increase its marketing spend, was led by pan-African investor Ventures Platform with participation from Voltron Capital, Acasia Ventures and other angel investors. 

Seun Alley, with experience in the banking sector, founded Fez Delivery in 2020 to connect businesses and markets without issues of mistrust and inefficiencies. The company was built with the goal to be the first choice for customers, employees and investors worldwide, with a growth, focus on its profitable core logistics business and accelerating digital transformation in the sector. 

Fez Delivery offers hassle-free business practices, corporate participation and training activities, leveraging APIs and dashboards to enable its business clients have a seamless experience. The logistics company affirms to have over 17,000 customers using its platform, with 70% being individuals, and 30% made up of a combination of SMEs and startups.

Last year, FEZ for fintechs was launched by the company in a bid to provide debit cards and POS terminals to customers and agents in Nigeria. To further meet the demand, Fez Delivery developed a SaaS platform to onboard and verify two-wheeler logistics platforms of about five-10 fleet sizes. These third-party partners receive revenue from Fez Delivery as individuals get charged per delivery (distance/size of items) and businesses pay a flat-fee subscription (based on a set range of deliveries).

The Techstars Toronto-backed asserts to have completed 200,000 trips last year and grew revenue by 20% month-on-month. Flutterwave, Kuda Bank, Moniepoint, OPay, Red Bull and Famasi Africa are some of its clients.