1.1 Introduction
Petroleum products are refined substances obtained from crude oil and are used to power transportation, industries, electricity generation, and other economic activities. According to the International Energy Agency, petroleum products such as Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), and Dual Purpose Kerosene (DPK) remain essential sources of energy for road transportation across many developing economies (IEA, 2023). In Nigeria, Premium Motor Spirit (PMS), commonly referred to as petrol, is the primary fuel used by most commercial vehicles because of its availability and compatibility with vehicle engines.
The price of Premium Motor Spirit (PMS) has become one of the most influential factors affecting transportation costs in Nigeria. Fuel price increases directly affect the operating expenses of commercial vehicle transporters because petrol constitutes a major proportion of their daily running costs. When PMS prices rise, transport operators are often compelled to increase transport fares to offset higher operating expenses, while some are unable to transfer the entire cost to passengers due to market competition and declining purchasing power. According to National Bureau of Statistics (2024), transportation costs have continued to rise alongside increases in fuel prices, contributing significantly to inflationary pressures within the Nigerian economy.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the aim and objectives of the study. Others are significance of the study, scope of work, research hypothesis and questions, limitation of the study and definition of terms.
1.2 Background of Study
Petroleum products occupy a strategic position in the economic development of every nation because they provide the energy required for transportation, manufacturing, agriculture, commerce, and other productive activities. According to Todaro and Smith (2021), energy availability is a major determinant of economic growth because it facilitates production, distribution, and the movement of people and goods. In Nigeria, Premium Motor Spirit (PMS), commonly known as petrol, remains the dominant fuel used by commercial vehicles due to the widespread dependence on petrol-powered engines. The road transport sector relies heavily on PMS to sustain daily operations, making changes in its price an important factor influencing transport service delivery and the overall economy.
Commercial transportation is an essential service that promotes mobility, employment, and economic interaction within communities. According to Oyesiku (2017), road transportation accounts for the largest share of passenger movement in Nigeria because it provides flexible and accessible transport services across rural and urban areas. Commercial vehicle transporters, including bus operators, taxi drivers, minibus operators, tricycle riders, and ride-hailing service providers, depend on affordable fuel to operate efficiently and earn sustainable incomes. The availability and affordability of PMS therefore play a significant role in determining the cost of transportation, the profitability of transport businesses, and the welfare of both operators and commuters.
The pricing of petroleum products has remained a subject of national concern because of its direct influence on virtually every sector of the economy. According to Ajakaiye and Fakiyesi (2009), fluctuations in petroleum prices affect production costs, transportation expenses, inflation, and household welfare. Fuel price increases often translate into higher operational costs for commercial transporters, who consume large volumes of PMS daily. As operating expenses rise, transport operators are compelled to review transport fares in an attempt to recover costs and sustain their businesses.
Nigeria has witnessed several adjustments in the retail price of PMS over the years due to changes in government policies, international crude oil prices, exchange rate movements, and reforms within the downstream petroleum sector. According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (2024), the deregulation of the downstream petroleum industry introduced market-based pricing, allowing PMS prices to reflect prevailing economic conditions. This policy shift has resulted in more frequent price variations than previously experienced under the fuel subsidy regime. Similarly, Adenikinju (2008) reported that energy price reforms are often accompanied by increases in transportation and production costs because energy serves as a major input in economic activities. Rising PMS prices place financial pressure on commercial vehicle transporters whose businesses depend almost entirely on daily fuel consumption. Since fuel expenditure represents one of the highest components of transport operating costs, any increase in petrol prices immediately reduces profit margins unless transport fares are adjusted accordingly.
In the same vein, Nnanna (2011) asserted that transportation costs constitute a major component of commodity prices because goods and services require efficient movement from producers to consumers. When fuel prices increase, commercial transport operators incur higher operational expenses, which are often transferred to passengers through increased transport fares. This adjustment, however, does not always compensate for the rising costs because passenger demand may decline as households attempt to reduce transportation expenses during periods of economic hardship.
Likewise, Mankiw (2021) stated that persistent increases in energy prices contribute to inflation by raising the cost of production and distribution across different sectors of the economy. The transportation sector is particularly vulnerable because virtually all commercial transport services depend on petroleum products for daily operations. Commercial vehicle transporters therefore experience multiple challenges, including increased fuel expenditure, higher maintenance costs, rising prices of spare parts, and declining purchasing power among commuters.
Furthermore, according to the World Bank (2023), transportation is a critical driver of inclusive economic growth because it supports labour mobility, market access, and business expansion. However, sustained increases in PMS prices reduce the efficiency of transport services by increasing operating costs and limiting the financial capacity of transport operators to maintain their vehicles adequately. In many instances, operators postpone vehicle servicing, delay replacement of worn-out components, or reduce the frequency of trips in an effort to manage increasing expenses.
This study is set against the backdrop of the persistent increase in the price of Premium Motor Spirit (PMS) and its effect on the operational performance, profitability, and sustainability of commercial vehicle transporters in Nigeria.
1.3 Statement of Problems
Investigation revealed that the persistent increase in the price of Premium Motor Spirit (PMS) has become one of the major challenges confronting commercial vehicle transporters in Nigeria. The continuous rise in fuel prices has significantly increased the daily operational expenses of transport operators, thereby reducing profit margins and making it increasingly difficult for many transport businesses to remain financially sustainable. Since fuel constitutes a substantial proportion of vehicle operating costs, every upward adjustment in PMS prices directly affects the cost of providing transport services, leading to economic pressure on commercial transporters (International Monetary Fund, 2024).
The increase in PMS prices has also resulted in frequent adjustments in transport fares, which have reduced the affordability of transportation for many commuters. As transport fares continue to rise, passenger demand is often affected because some commuters reduce the frequency of travel or seek cheaper alternatives. Consequently, commercial vehicle operators experience fluctuations in daily income despite charging higher fares (National Bureau of Statistics, 2024).
Furthermore, higher fuel prices have contributed to increased maintenance and operating costs arising from inflation in vehicle spare parts, lubricants, and other transportation-related inputs. Many commercial vehicle transporters struggle to meet these rising expenses while maintaining safe and reliable transport services. In some cases, transport operators postpone necessary vehicle maintenance to reduce costs, thereby increasing the likelihood of vehicle breakdowns and compromising service quality (World Bank, 2023). It is against this backdrop that this study seeks to examine the effect of price increase in petroleum products (Premium Motor Spirit (PMS)) on commercial vehicle transporters.
1.4 Aim and Objectives of Study
The main aim of this study is to examine the effect of price increase in petroleum products (PMS) on commercial vehicle transporters.
The specific objectives of this research are to:
- Examine the effect of PMS price increase on the operating costs of commercial vehicle transporters.
- Determine the effect of PMS price increase on transport fares charged by commercial vehicle operators.
- Assess the effect of PMS price increase on passenger patronage among commercial vehicle transporters.
- Examine the effect of PMS price increase on the profitability of commercial vehicle transport businesses.
- Identify the challenges faced by commercial vehicle transporters as a result of increasing PMS prices.
1.5 Research Questions
The following research questions guide the study:
- What is the effect of PMS price increase on the operating costs of commercial vehicle transporters?
- What is the effect of PMS price increase on transport fares charged by commercial vehicle operators?
- What is the effect of PMS price increase on passenger patronage among commercial vehicle transporters?
- What is the effect of PMS price increase on the profitability of commercial vehicle transport businesses?
- What challenges are faced by commercial vehicle transporters as a result of increasing PMS prices?
1.6 Research Hypotheses
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Increase in PMS prices has no significant effect on the operating costs of commercial vehicle transporters.
- H1: Increase in PMS prices has a significant effect on the operating costs of commercial vehicle transporters.
Hypothesis Two
- H0: Increase in PMS prices has no significant effect on transport fares charged by commercial vehicle operators.
- H1: Increase in PMS prices has a significant effect on transport fares charged by commercial vehicle operators.
Hypothesis Three
- H0: Increase in PMS prices has no significant effect on passenger patronage among commercial vehicle transporters.
- H1: Increase in PMS prices has a significant effect on passenger patronage among commercial vehicle transporters.
Hypothesis Four
- H0: Increase in PMS prices has no significant effect on the profitability of commercial vehicle transport businesses.
- H1: Increase in PMS prices has a significant effect on the profitability of commercial vehicle transport businesses.
Hypothesis Five
- H0: Increase in PMS prices does not significantly contribute to challenges experienced by commercial vehicle transporters.
- H1: Increase in PMS prices significantly contributes to challenges experienced by commercial vehicle transporters.
1.7 Significance of Study
It is believed that at the completion of the study, the findings will provide useful information on how PMS price changes affect transportation services and assist in developing policies that support affordable transportation. Also, the research will help transport operators understand the major cost challenges associated with fuel price increases and ways of improving their operations.
Furthermore, this study will assist government agencies in understanding the transportation difficulties caused by changes in petroleum product prices. It will also help passengers understand the factors responsible for changes in transport fares.
Lastly, the research will serve as a reference material for students and researchers interested in petroleum pricing and transportation studies.
1.8 Scope and Limitations of the Study
The study covers commercial vehicle transporters operating in Uyo Local Government Area of Akwa Ibom State, Nigeria. It focuses on the relationship between PMS price increases and transportation activities. The study examines fuel costs, income level, transport charges, and business performance of commercial vehicle operators.
The study was limited to selected commercial transport operators within the study area because of difficulties in reaching all transporters across the state. The findings may not represent every commercial vehicle transporter in Nigeria.
1.9 Definition of Terms
Petroleum Products:
Petroleum products are substances obtained from crude oil through refining processes and used for energy generation, transportation, and industrial activities. According to Todaro and Smith (2021), petroleum products are important energy resources that support economic activities by providing fuel for production and transportation systems. In this study, petroleum products refer specifically to Premium Motor Spirit (PMS) used by commercial vehicles.
Premium Motor Spirit (PMS):
Premium Motor Spirit (PMS), commonly called petrol, is a refined petroleum product mainly used to power vehicles with petrol engines. According to Adenikinju (2008), PMS is one of the most important petroleum products in Nigeria because of its extensive use in road transportation. In this study, PMS refers to the fuel consumed by commercial vehicle operators for daily transportation activities.
Price Increase:
Price increase refers to a rise in the amount of money required to purchase a particular product or service. According to Mankiw (2021), price increases occur when the cost of goods and services rises due to changes in supply, demand, or economic conditions. In this study, price increase refers to the continuous rise in the cost of PMS and its effect on commercial transportation.
Commercial Vehicle Transporter:
Commercial vehicle transporters are individuals or groups that provide transportation services to passengers or goods in exchange for payment. According to Oyesiku (2017), commercial transport operators play a major role in providing mobility services in areas where public transportation infrastructure is limited. In this study, commercial vehicle transporters refer to taxi drivers, bus operators, and other road transport operators who depend on PMS for their businesses.
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