Facing up to the reality of South African logistics

From deteriorating roads to chaotic ports and a failing rail network… the reality of South African logistics is anything but pretty. So says NICK PORÉE.

The latest undercover gyrations in the government think-tank, hidden behind the “state of emergency”, have every likelihood of finally collapsing the economy. The Employment Equity Bill will create the same chaos in the private sector as cadre deployment has in the government. It will also accelerate the closure of small and medium-sized enterprises (SMEs), which are already under extreme pressure from the over-regulated business environment.

As noted by the Solidarity Research Unit: “Virtually all the major price increases in the latest Consumer Price Index (CPI) released by Statistics South Africa occur among the regulated administrative prices, which rose by a shocking 16,7% over and above general inflation of 5,7%. In short, where the government is involved, it is to the total detriment of everyone. Breaking the government’s stranglehold on the economy is no longer something that is merely desirable, but has become imperative. The government’s incompetence has now indeed become unaffordable.”

The transport and freight logistics sector is under extreme pressure from the 30% increase in the fuel price and the huge costs of inefficiencies at ports and borders. In some areas, this is aggravated by road deterioration from a lack of maintenance and companies being forced to resort to road transport to counter the inefficiency of the railways.

Misguided Transnet strategies

Portia Derby, Transnet group CEO, believes that partnerships could be the way forward for the company. “Transnet has also accelerated its segment strategy delivery focus. In containers, autos, and agriculture, strong and meaningful partnerships are in the transaction delivery stages, with container terminal requests for proposals in the ports of Ngqura and Durban, and inland terminal transactions underway for Kaalfontein and City Deep. The partnerships are intended to improve Transnet’s response to demand, while increasing profitability and dynamism in the different segments,” she recently wrote in Business Day.

This implies the continued monopoly of planning and allocation of Transnet-owned resources. “Dynamism” is also very misleading – especially when considering the current state of the railways (with their recent R8 billion annual loss and all the attendant lack of capacity). The Minerals Council reported that a lack of “response to demand” (by its core business) cost the mining industry R30 billion in 2021.

The CEO also refers to “Transnet National Ports Authority’s (TNPA’s) strategy of building a truly globally-competitive container hub at the Port of Durban, a game-changer for SA’s competitiveness, focused on substantially reducing sea-freight rates for our exports”. This is a complete contradiction to the current Durban (2021) port plan, which ignores the 15-year backlog of deferred development and expansion that is now causing import-export industries very significant losses due to lack of capacity.

The plan offers disjointed and unconvincing increases in capacity with no foundation in facts. It totally ignores the impacts of Transnet activities on the economies of Durban, KwaZulu-Natal, and South Africa as a whole, and is an indication of the lack of foresight and competence to handle this important “gateway” to South Africa and the region.

Regional cargoes and shipping lines are increasingly diverting to other ports and there is no sign of any intention by Transnet or any of the other authorities to create further capacity for the next 20 years. With current debts and managerial and technical incapacity, it is unlikely that Transnet will be capable of providing competitively-priced port and railway services for many years to come.

Concerns are rife across the sectors

The potential for third-party railway logistics is limited by the low number of industrial concentration points and rail terminals in the country and the relatively low volumes of full-load containers that are offered for railage by industry. The door-to-door transport of containers between Durban and the interior is marginally cheaper by road due to terminal and cross-haul rates and the cost of transporting empty containers back to the port depots, which are nearly all off-rail.

There are grave concerns in the agricultural sector. With the fruit and grain export seasons starting in a few months, ongoing logistics costs and inefficiencies may make exports unprofitable. Many small vegetable and fruit producers are closing down as the cost increases in transport, packaging, fertiliser, chemicals, and labour make production unprofitable. This is likely to cause shortages in many areas.

The logistics costs are aggravated by supermarket chain market dominance, which results in farmers being paid about 15% of the retail sales price of vegetables, milk, eggs, and fruit.

Many of these costs are the result of government inefficiency and an ideological focus on economically unsound and self-defeating populist measures. This is evident from the 40% unemployment rate and deindustrialisation caused by the Department of Trade, Industry and Competition and the Department of Labour’s obsession with “masterplans”, as well as government-managed Special Economic Zones and Industrial Development Zones (SEZs and IDZs). The focus on BEE emergent industrialists and financially-supported, unproductive “farmers” is worsening the climate for investment in South Africa and there are increasing disinvestments in the logistics sector.

The basic problem with state-owned monopoly companies is that they are remote from the realities of the commercial world. They assume that the service they provide is acceptable and have no way to measure their competitiveness until exposed to market discipline. The mantra in the Railway White Paper of “inherent competitiveness” of rail transport is misinformation. Railways only have inherent advantages for bulk or homogenous cargo over longer distances to and from dedicated handling facilities; for breakbulk cargoes, the facilities must be created at key locations to attract business.

The lack of interest in railway transport from any but captive industries is a clear indication of the general dissatisfaction, and no amount of blustering will force cargo from road to rail until there is a competitive service. The port services’ monopoly forces industry to use them despite excessive costs and losses from inefficiency. Attempts at diverting cargo to Maputo are causing 15-km queues of trucks at Lebombo.

The real commercial answer to the current Transnet situation is to disaggregate the conglomerate into separate competitive public-private partnership (PPP) companies with professional managers and allow the market discipline to either support them or collapse and replace them. For the railway sector, this requires institutional changes and the creation of a complete regulatory and management framework for track, train, and facilities. In order to recapitalise port and rail developments, it is necessary to design extensive Build-Operate-Transfer (BOT) contracts for tender by competent local or international firms. These will fund and replace the current inefficiencies of the government-owned transport and logistics industries with international best practice and commercial competition. This is essential to get South Africa back onto a viable commercial growth trajectory based on ownership, competence, responsibility, competition, and sensible industrial relations free from the interference and administered costs of government.

The danger is that South Africa will face a continuation of incompetence and the unwillingness to release government’s stranglehold on the economy, as seen with SAA and other non-performing state-owned companies.

The rapidly increasing costs of business and the cost of living is accelerating the rate of emigration of potential entrepreneurs and technically competent individuals, with negative impacts on the country’s production potential. Failure to change the current structures will hamper industrial growth and aggravate the social tensions caused by the unchecked civil service predation and affluence, and the increasing poverty of the population.