May

Increased fuel price biggest cost driver in logistics arena

2014-05-30 12:42
The absolute costs of logistics in South Africa is forecasted to rise this year to between R456-billion and R470-billion - depending on fuel inflation.

The absolute costs of logistics in South Africa is forecasted to rise this year to between R456-billion and R470-billion – depending on fuel inflation. This is an increase over last year when logistics costs were estimated at R423-billion and a steep increase over 2012 when the figure was put at R393-billion.

This emerged from the 10th State of Logistics™ survey for South Africa published by the Council for Scientific and Industrial Research (CSIR) in collaboration with Imperial Logistics and Stellenbosch University released this week.

The survey now gives the market a decade’s information on the country’s logistics costs and efficiency. While the structure of the publication has remained similar over the past 10 years, this year’s survey has, for the first time, provided a forecast of the current calendar year’s costs.

Although logistics costs as a percentage of GDP remained at a stable level of 12.5% for 2011 to 2013, they are forecasted to show a slight increase in 2014 depending on the magnitude of fuel inflation. A deeper investigation of individual cost components and cost drivers show that the increase in logistics costs is perhaps not so much the result of deteriorating efficiency in the industry but the disproportionate growth in cost drivers – especially fuel.

The survey reports that South African supply chains have moved beyond survival to optimised mode where costs, inventories and lead times have been minimised within individual supply chain functions.

End-to-end integration of supply chain functions is the next major shift required in South Africa to make business more customer-centric and competitive. An integrated supply chain approach unlocks logistics efficiencies that were previously unavailable.

The survey highlights that the public sector needs to create an enabling environment for effective logistics. Appropriate logistics infrastructure and a greater drive towards intermodalism are seen as key enablers to reduce costs and improve performance in South Africa’s logistics industry. Investment in rail, road, port, pipeline and airport infrastructure continues to be a high priority for the country with hundreds of billions of Rand invested annually in various projects.

The survey points out that as is the case globally, funding for mega infrastructure projects is a significant constraining factor, thus public private partnerships (PPPs) are becoming essential to realise the country’s ambitious infrastructure expansion plans.

The country’s national road network has remained in a good condition between 2009 and 2013 under the jurisdiction of SANRAL. Unfortunately, however, many provincial road networks have deteriorated considerably – partly due to the accelerated wear caused by trucks carrying rail-friendly freight. (Editors’ Note: As well as little or no maintenance being conducted by the provinces on many of their roads).

The survey states that if focus is firstly put on upgrading ‘poor’ and ‘very poor’ sections to a ‘fair’ condition, this will save more vehicle operating costs than upgrading ‘fair’ roads to a ‘good’ or ‘very good’ condition. The institution of the Provincial Road Maintenance Grant (PRMG) on 1 April 2014 is expected to spur a turnaround in provincial road asset management.

Smart Trucks, a product of the performance-based standards (PBS) initiative driven in South Africa by the CSIR, is a road transport project that holds great promise for increasing transport efficiency in tandem with modal shift imperatives. Demonstration projects have shown average improvements in fuel efficiencies of 14% along with a drastic reduction in road wear and larger payloads which result in fewer trips.

The survey also stresses that the global economic situation – along with rising cost drivers – spells out increased competition and tighter margins. In view of this, driving down the cost of logistics, making South Africa more competitive and capitalising on growth potential in Africa and global commodity markets will require no less than bold steps forward.

The survey concludes that greater supply chain integration, modal shift, transport efficiencies and successful PPPs will require proactive effort, courage and innovation from both the private and public sectors.

The 10th State of Logistics™ survey for South Africa is downloadable at:
www.csir.co.za/sol and at www.imperiallogistics.co.za/stateoflogistics

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