“Total logistics costs should have been significantly lower in 2009 due to the financial crisis and contraction of the economy. It would have been fair to have expected this percentage to have dropped to a level of closer to 12.5%, given the downward changes in the two leading cost drivers, namely the sharp drop in the price of diesel and in the interest rate,” says Hans Ittmann, Executive Director of CSIR Built Environment.
The survey, themed ‘Value Creation towards Global Competitiveness and Sustainability’ states that while investment into transportation infrastructure has been necessary, it has been costly. “A major concern is the effect of the recovery of infrastructural development costs over the next few years,” says Ittmann.
“Apart from the logistics costs report released annually by the USA, the State of Logistics™ survey is the only other report that covers the annual logistics costs of a country. Using the reports published the past seven years, one can track trends of various important logistics factors within the country,” notes Ittmann.
The State of Logistics™ survey has become one of the premier references for logistics in South Africa through benchmark-driven research and the CSIR’s long-term partnership with IMPERIAL Logistics and Stellenbosch University. This year, topics centre on ‘green’ logistics (including ‘extra distance’ measurement); deteriorating road quality and benefit-cost analysis; supply chain risk management; the skills issue; and rural logistics.
Total cost of logistics
“Total tonnage and ton-km decreased in 2009, by 4% and 3.7%, respectively,” says Dr Jan Havenga of Stellenbosch University. “Less freight was transported in 2009, with a reduction in transport costs of 9.2% -
much less than the fall in the price of diesel (28.3%).”
Totalling R22.7 billion, the majority of the country’s externality costs were caused by road transport. At
R10.9 billion, accidents comprised the largest cost component, followed by the impact of emissions at
R5.2 billion and that of congestion at R4.5 billion. Notably, 23 million tons of greenhouse gasses were emitted due to land freight transport activities.
Havenga adds, “This amounts to 49% of transport emissions and just under 5% of total emissions for the country. Road freight contributed 20.3 million tons and rail 2.7 million, which translates into R4.6 billion and
R0.6 billion in costs to the environment.”
“Transportation costs, which have always been the highest cost element locally, seem to be equally high contributors to logistics costs in most other countries, whereas our administration costs remain comparatively high,” he says.
In 2009, the average inventory requiring financing increased by 15.2%, from R416-billion to R513-billion. Inventories relative to output increased from 17% to 21% between 2007 and 2009. Havenga explains that as the recession deepened, inventories built up due to lower consumption. “This, in turn, led to larger inventory holdings that needed to be financed and also to less efficient transport due to lower volumes and more empty-hauls. Inventory carrying times increased from 12 to 15 days on a weighted average basis.”
Performance by transportation mode
“For the first time since the launch of the survey there has been a decline in transport activity on all typologies, except bulk mining,” says Ittmann. “The impact of the recession is evident. There has been a slight reduction in freight tonnage moved; however, the tonnage split between road and rail remained almost the same at 88.7%
on road and 11.3% on rail.”
Only profitable rail infrastructure was used, while larger components – notably the branch lines – in the more rural areas were not utilised, while simultaneously becoming increasingly dilapidated. “In terms of rail as a freight transportation mode, we could be dealing with a ‘low cost, low service’ situation compared to a ‘high cost, high service’ one,” he says.
The survey indicates that South Africa is underperforming in terms of harbour efficiencies. Referring to a recent study commissioned by the Ports Regulator, it cites that the Durban harbour was found to be the most expensive among 12 international harbours used for benchmarking, and its productivity was rated the lowest overall. In this regard, any comparison with other countries must be done within the specific context, a point stressed throughout the 7th survey.
Value creation through outsourcing
The survey indicates that approximately one third of transport activity in South Africa is outsourced. It states: “The major growth opportunity for road hauliers is not among available outsourced freight, but rather growth in outsourcing, often achieved by total logistics arrangements that can highlight savings on cost of ownership.”
“While traditional supply chains offer three primary benefits, namely reduced costs, faster delivery and improved delivery, these advantages are no longer sufficient in the modern business world,” says Marius Swanepoel,
CEO of IMPERIAL Logistics. “A new paradigm is emerging where supply chains should also serve as a vehicle for developing and sustaining competitive advantage under a variety of performance objectives.”
He says that effective outsourcing can reduce logistics costs by optimising loads, orders and capacity, adding: “Only as good as their weakest link, supply chains should provide one or more of six basic outcomes, namely cost, responsiveness, security, sustainability, resilience and innovation.”
Collaboration and competitiveness
The 7th State of Logistics™ reiterates the need for closer collaboration between the public and private sectors to deliver economic infrastructure that supports economic growth and job creation, and to tap into the current commodity upcycle.
“Government recognises that logistics and supply chain management are critical for the competitiveness of the country. According to the recent New Growth Plan for South Africa, bottlenecks and backlogs in logistics hamper economic growth and raise costs,” says Ittmann
A move from mediocrity
“Supply chain performance will be mediocre unless the organisation, people, skills sets, and culture are world-class. If we settle for such mediocrity, South African business will be sluggish, generating sub-standard economic growth,” says Ittmann. “Our logistics sector needs to outperform its historic highs,” he adds. As recently stated by Finance Minister, Pravin Gordhan, the country needs to achieve seven percent in economic growth annually, for the next 20 years.
“South Africa is on a potentially exciting growth path. Our new membership to the emerging market leadership, BRICS (Brazil, Russia, India, China and now South Africa) provides a confidence boost to the goal of becoming an entry point for countries and companies looking to do business on the African continent. Cutting our total cost of logistics by applying innovative, pragmatic thinking holds the key to the contribution of logistics to improved global competitiveness for the country,” concludes Ittmann.
The 7th State of Logistics™ survey is available online at: