Logistics in crisis!

The South African economy and logistics system is underperforming at zero GDP growth and there are no plans for economic growth. NICK PORÉE writes that there is merely a range of catchups to try to recover the state-owned corporations’ (SOCs’) lack of capacity caused by bad management decisions and corruption.

In its excellent article, South Africa’s Anti-Growth Strategy: How poor policy and bad governance are wrecking growth, the Centre for Development and Enterprise (CDE) notes that new government regulations are all about further restrictions on commercial production, labour, and water; higher costs, interest rates, and customs fees; and worsening exchange rates. Government planning is fragmented into programmes and master plans designed around uncommercial objectives to suit political ideology and existing structures. The logistics industry has declared a crisis situation and is now trying to talk to government.

On 7 June, the president announced that government will engage with industry via Business Unity South Africa(BUSA), and Business for South Africa (B4SA). This is critically necessary, as there is minimal commercially competent leadership in government and SOCs at all levels.

The three immediate priority interventions agreed upon were energy, transport and logistics, and crime and corruption. The response has been a predictable committee approach with the National Energy Crisis Committee (NECOM), National Logistics Crisis Committee (NLCC), and Joint Initiative to Fight Crime and Corruption (JICC). The announcement mentions a number of intentions within these three fields.

ENERGY

Advancing collaboration through the National Energy Crisis Committee (NECOM) will seek to end load shedding and achieve energy security. It aims to support a drive to close the current energy capacity gap and build confidence in restoring energy security.

Business has agreed to further capacitate NECOM; the goal is to develop a confidence-building national communication plan that is credible, transparent, and supported by business, and that displays visible and demonstrable actions.

TRANSPORT AND LOGISTICS 

When it comes to our sector of industry, the goal is to stabilise and improve operational performance on key trade corridors. Private sector resources will be mobilised and the stakeholders will accelerate implementation of the National Rail Policy to close the capacity gap. 

Work is underway to immediately align and integrate business’ efforts into the government’s Freight Logistics Roadmap. Furthermore, the goal is to urgently enable the development of work plans, deliverables, and timelines while integrating the private sector into the recently formed National Logistics Crisis Committee (NLCC). 

CRIME AND CORRUPTION

Here, government is reasserting the primacy of the rule of law and strengthening the Investigating Directorate (ID) in the National Prosecuting Authority (NPA). It will be implementing intelligence, policing, and other reforms in response to the recommendations of the Commission of Inquiry into State Capture, the Panel of Inquiry into the July 2021 Unrest, and the High-Level Review Panel on the SSA, which will assist in these efforts.

Business will provide support, on a carefully governed at-arms-length basis, to combat crime and corruption, supplying in particular expert resources to further capacitate the NPA and the ID.

It has also been agreed to establish the Joint Initiative to Fight Crime and Corruption (JICC), which will be the delivery mechanism to implement related interventions.

From a logistics perspective, the announcement has lots of soothing but ominous words like “stabilise”, “mobilise”, “integrate”, “accelerate”, and “align”, and phrases like “coordinate into Government’s Freight Logistics Roadmap” – whatever that may mean. If this is another government masterplan it is doomed to failure, as the global transport and logistics industry is dynamic, innovative, competitive, and managed by international operators to standards which will not be fettered by parochial policies.

South Africa is regressing by these standards. There is industry concern that the current engagement is just an application of the tactic of including “stakeholder consultation” to broaden responsibility, so as to exonerate government from the obvious failures. A further concern is that the planned debates all take place outside of due parliamentary structures and oversight, and without defined legal authority for action.

“Logistics efficiency” relates primarily to the movement and delivery of goods and services (or the lack thereof). The volumes involved are dependent on the producing sectors of the economy, with which the transport and logistics industries attempt to keep pace. The current crisis situation is complicated by the fact that “the crisis” is many-sided and the effects are different for various industries and businesses. Logistics deficiencies take many forms. These are some of the most important:

NO PHYSICAL GOODS: A lack of local stock and the non-delivery of industrial goods is causing production downtime due to inventory costs, low demand, stock centralisation, and logistical delays. A shortage of overseas stock, on the other hand, is often due to obsolete local equipment and low demand.

Localisation is a challenge thanks to the lack of skills, capital, and entrepreneurship to replace foreign technology. This is aggravated by governmental industry planning.

POOR ROAD SAFETY: Road fatalities total around 14,000 per year, with 9.4% involving trucks. Accident reporting has been inadequate and inefficient since 2011 due to Road Traffic Management Corporation (RTMC) failures, despite an annual budget of R1.2 billion and 35 general managers.

Primary accident reporting is done by the South African Police Service (SAPS) through 1,116 police stations. The SAPS has 176,708 police officers with more important priorities. In many areas, they are ill-equipped for rapid response, and the only pockets of efficiency are in some major metros like Durban and Cape Town.

SUBSTANDARD POLICIES AND PLANNING: The failure of the Sector Education Training Authority/Transport Education Training Authority’s apprenticeship system may be irreversible. The scarcity of fully qualified journeymen, suitable trainees, and quality training institutions makes the training of adequate numbers of prospective technicians problematic, and probably impossible without a total overhaul of the systems.

FAILING BASIC AND HIGHER EDUCATION SYSTEMS: As widely reported, the defective education system fails to produce employable graduates for managerial and technical positions in industry.

A POLARISING EMPLOYMENT EQUITY ACT AND RESTRICTIVE TRANSPORT ECONOMIC REGULATOR BILL: The former will accelerate unemployment and emigration while promoting the polarisation of employment relationships. The latter includes ominous clauses attempting to regulate all modes by restrictive conditions.

THE COLLAPSE OF TRANSNET: Transnet and the railways have collapsed, both financially and in terms of management capacity. Their rehabilitation will cost billions of rands, and it is unlikely that the resulting services will be cost effective or competitive unless they are owned, designed, and managed by private commercial enterprises.

CRIME AND SECURITY FAILURES: SAPS (with 176,708 personnel) costs R1.2 billion a year. According to BusinessTech, our private security industry (the largest in the world) has 556,000 active personnel costing R45 billion annually. This is all paid for by industry and the public due to the failure of law and order, but the massive expenditure is failing to control commercial crime.

THE EFFECTS OF ESKOM ON INDUSTRY: The power failures and the cost of backup are amounting to billions of lost production hours and additional costs respectively.

RISING COSTS, INCREASING INFLATION RATES, AND ADMINISTERED PRICING: The industry is facing increases in vehicle registration costs. Attempting to control cost-push inflation by increasing costs, meanwhile, is understandable due to authority structures but illogical in practice.

Companies don’t only have to contend with rising costs when it comes to fuel, rates, water, and electricity. They also have to deal with minimum wages that act as barriers to unskilled employment, soaring exchange rates (R19.10 to the dollar) due to policy positions, and ridiculous customs duties on vehicles and tyres.

COSTLY DELAYS AND OBSTACLES, ALONGSIDE SHOCKING ROAD CONDITIONS: Driver forums are in place but the responses by the authorities are ineffective. Border delays are costing billions, while there are also delays in transport caused by load shedding, inefficiencies, and production disruptions. Transnet’s ports have inadequate capacity due to historical infrastructure, monopoly control, and deferred development. At the same time, we are seeing the continual deterioration of roads in many areas.

These numerous logistics deficiencies are the result of a wide range of different causes. According to the CDE these causes, in turn, result from failures in the government’s policy and governance, as well as isolation from their impacts on commercial industrial efficiency. The delivery failures can be listed and solutions identified, but when push comes to shove, they will all require extensive and expensive action.