Fuel is a key economic driver in South Africa, and as the fuel industry continues to wade through volatility, with rising fuel prices and logistical pressures, insurance guarantees are a critical tool for financial stability and operational continuity – for both suppliers and buyers.
Sarah Wright, Senior Underwriter at Lombard Insurance (Lombard), highlights the growing importance of these guarantees in the fuel space. “The fuel industry is dealing with everything from fluctuating global oil prices to the constraints of local storage capacity. Before any of these challenges stop the industry in its tracks, guarantees offer a way to mitigate risk and maintain trust between suppliers and buyers – keeping the fuel flowing and the country growing,” she explains.
Fuel guarantees: a lifeline for buyers and suppliers
For fuel buyers, a supplier’s inability to provide fuel can trigger cash flow crises. Wright notes, “When buyers are forced to source fuel elsewhere at short notice, they often need to pay upfront, which is a drastic shift from their usual credit arrangements. This risk can often be mitigated by securing a credit line – through an insurance guarantee – a with more than one supplier. A guarantee ensures the suppliers have the confidence to extend credit terms.”
The focus for these guarantees has changed as South Africa has transitioned from mostly importing crude oil and refining it locally to mostly importing refined products. Wright says the shift has placed additional pressure on the industry as guarantees are no longer limited to local suppliers and refiners, but also need to be issued to international traders. By-products like bitumen, previously produced as part of the refining process, must now also be imported.
“Storage limitations further exacerbate the issue,” says Wright. “The demand for the importation of refined products has increased, but we simply don’t have the capacity to store the product at the ports.”
The Lombard Guarantee business has positioned itself as a key player in offering fuel guarantee solutions specifically relevant to multiple stakeholders, including airlines, mining operations, transport companies, and wholesale distributors. These guarantees provide an alternative to hefty upfront cash payments, easing the cashflow strain on buyers.
“Our industry and market insight allows us to offer a great service to both buyers and suppliers in the fuel industry,” Wright says. “For suppliers, this means reduced exposure to default risk. For buyers, it’s about enabling growth without the immediate need for liquid capital.”
Case in point: a wholesaler’s growth journey
Wright recounts the impact of an insurance guarantee: a fuel wholesaler approached Lombard during a period of rapid growth. The supplier required a substantial guarantee before extending a credit line to the wholesaler.
“After meeting the client and understanding them and their business (not just the numbers), we were able to issue the guarantee, enabling them to purchase fuel from the supplier on credit. Over the next four years, we worked closely with them to monitor and manage risk effectively, growing with them as they have taken on more clients and grown their business. We have enabled them to move away from other more expensive forms of financing which they were historically using to pay for the fuel upfront.”
Navigating fraud and financial integrity
However, guarantees also come with challenges.
“Given the very tight margins in the fuel industry there is always a risk that some companies might get creative to find ways to increase margins,” Wright acknowledges. “We keep close to our clients and the industry as a whole to mitigate this risk.”
Fuel guarantees driving industry resilience
As South Africa braces for another fuel price hike, the need for effective financial safeguards is more pressing than ever. “Guarantees are not just about mitigating risk; they’re about enabling business continuity,” says Wright. “They provide the stability that both suppliers and buyers need to thrive in an unpredictable market.”
For stakeholders in the fuel industry, Lombard’s specialised knowledge and proactive approach offer more than just financial protection—they represent a partnership built on trust.
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