How Can Transport Costs in South Africa Be Equally Distributed Along the Value Chain?

How can Transport Costs in South Africa be equally distributed along the Value Chain?

 Logistics and supply chain management play a big role in any economy and is a critical contributor to the competitiveness of a country. The demand for products can only be satisfied through the proper and cost-effective delivery of goods and services. South Africa’s main economic activity is located in Gauteng and this has a serious effect on logistics costs. South Africa can grow its market share of various products in the global market, the supply chains need to be world class to ensure effective delivery of goods.

According to Bowersox, Rodrigues and Calantone (2005), Logistics costs represented 13.7% of the world’s accumulated GDP in 2000. South Africa is regarded as a logistics over-performer when comparing the LPI score relative to income per capital in comparison to counties such as China and India. The decline in logistics costs compared to GDP can be ascribed to efficiencies that were realised in the transport sector. Due to the severe oil price fluctuations in 2008 many road freight transport service providers increased their efficiency through load factor improvements (e.g. eliminating empty transport legs or consolidating more loads).

Fewer inventories was stored at lower real storage rates but for a longer period of time. The two major drivers of logistics costs in South Africa are the international oil price and interest rates, both of which are external drivers and cannot be controlled by logisticians. The most sustainable solution involves decreasing the dependence on imported oil through higher local fuel production or a structural shift to a better balanced freight transport system which includes an effective intermodal solution (incorporating road and rail transport).  Furthermore, although consensus exists on issues such as regeneration and use of rail capacity in conjunction with road in an intermodal solution, the competitiveness and sustainability of South Africa’s logistics system remain at risk and moving from consensus to action is long overdue.

The impact of logistics on climate change has attracted increasing attention while research has revealed that global warming presents a much greater and more immediate threat than previously thought. For example, it is estimated that freight transport accounts for roughly 8% of energy-related CO2 emissions worldwide (Kahn, Ribeiro and Kobayashi 2007). These concerns have led to what is now known as “green logistics. In South Africa logisticians have reacted slower to these concerns than the rest of the world.

Picture showing Score card of inefficiency and reliability

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Logistic cost is one of the core factors that determine product prices. It thus has a direct impact on the competitive advantage of South African goods in local and international markets. Inefficiencies in the transport sector, which lead to high freight transport cost, can consequently restrict economic growth and job creation. It is therefore important to understand the factors that impact on freight transport cost in order to recognize the full extent of the gap between actual and economically efficient transport costs. Air and road transport outperforms rail transport by far. These are also the costliest modes.) The performance of the rail system is further hampered by inadequate intermodal facilities. Inter-modal facilities are an essential component of the transportation of general freight by rail, as most short distance collections and deliveries are done by road. The same would apply to coastal shipping, which was not rated in the survey. Ports, which are one of the main determinants of sea transport, fare only average. This also hampers the use of one of the least costly modes. Due to the fact that coastal shipping has to use South African ports at both ends of the journey, domestic services would be affected more than international shipping.  

 The South African National Roads Agency Limited (SANRAL) is responsible for the implementation and maintenance of the national road network. It is common knowledge that SANRAL performs its function effectively and that the national road network is generally in a good condition. The only concern regarding the national road network is that tolls will increasingly be used to fund the upgrading and maintenance of these roads. This will increase logistics cost even further if rail remains to be an unacceptable alternative for long haul transport of general freight.

Rail Logistics

 One of the key aspects noted in the analysis of the price gap is the cross-subsidisation of the divisions within Spoornet. Spoornet plans to invest in the order of R 40 billion over the next five years in new equipment and infrastructure upgrading. The focus of this investment is in signal upgrading and maintenance, new trucks and locomotives.

Sea Logistics

South African port tariffs remain substantially higher than international best practice. Competition between ports is the only way to bring prices down in the long term through exploitation of their competitive advantage. National Ports Authority of South Africa is currently dominated by the building of a modern deep water port at the mouth of the Coega River to complement the Port of Port Elizabeth. The port will be able to accommodate vessels up to 80 000 deadweight tonnage. In order to reduce long distance shipping cost by using larger vessels with fewer ports of call, the expansion of one of the existing ports might have been more appropriate. Infrastructure improvements will increase the capacity of the terminal from 1.3 -1.6 million TEU’s per annum.