Transport costs strangle economic growth

Transport costs strangle economic growth

The administered costs of input factors to road freight transport (and many industries) are contributing to the poor economic performance of the countries using South African transport services. So says NICK PORÉE, who warns that consequences of these excessive costs can be dire.

These transport costs will have an obstructive influence on the various treaties to increase the current proportions of interstate trade in Africa. Within the ambit of South African road freight transport operations, the Tripartite Free Trade Area and the African Continental Free Trade Area will struggle against the economic realities of the trade and corridor costs and Non-Tariff Barriers (NTBs) in the region. The current total cost for a 30-ton load from Durban to Lubumbashi in the Democratic Republic of the Congo (DRC) is approximately R150 000, if no backload exists (25% border charges, 30% delay costs and 45% actual transport cost).
The excessive charges and costs of delay on the trade corridors have been aggravated by the defensive restrictions and procedures that were introduced by authorities to counter Covid-19. South Africa’s heavy-handed overreaction and complicated regulations have already resulted in the diversion of cargoes, which are unlikely to return. The failure of the authorities to listen to the experts in interstate trade – such as the SA Association of Freight Forwarders (SAAFF) and Federation of East and Southern African Road Transport Associations (Fesarta) – will have long-term negative consequences.

The shift to other ports

It is significant that 85% of copper exports by road from the North-South corridor countries are now directed to Dar es Salaam and Beira. The bulk of mining imports of fuel and acids are through Dar es Salaam, Beira and Walvis Bay, which will shortly be joined on the Atlantic coast by Lobito as an alternative route to Europe and the USA. As these routes are developed, they will be followed by increasing imports from the northern hemisphere, which will erode the markets of South African industries.

In the domestic transport field, the increasing use of “fuel levies” as general taxation has negative impacts on transport costs. According to the Organisation Undoing Tax Abuse (OUTA), the government taxes and levies amount to R9,48 per litre and make up 68% of the fuel price, despite the reduction in the international oil price. The Central Energy Fund (CEF) deficit points to another large fuel hike in February, which is estimated to be 82c per litre for diesel, pushing the pump price to about R16 per litre. This translates to about R8,80 per kilometre, or approximately 50% of the total cost of operating long-haul road transport.

Fuel price fears

In the local domestic short-haul market, the fuel price increase will raise transport rates by about 4%, which will have a further negative impact on the production of agricultural crops in many areas. As an example, the transport of vegetables from the KwaZulu-Natal Midlands to Durban with a round trip of 360 km costs R3 250 for a 5-ton load (R650 per ton). If the load is 1 000 cabbages, the transport cost per cabbage is R3,24 to be added to the production cost of R3,50. With 20% handling, shrinkage and mark-up by the retailer, the sales cost per cabbage amounts to R8. In reality, the prices asked by retailers are R12 to R15 per cabbage. The result is reduced sales in the urban areas (where a large proportion of the population cannot afford such prices) and the closure of vegetable farming operations and retrenchment of labour in the rural areas.

For transport operators forced out of business by rising costs and reduction or termination of customer demand, there are virtually no sources of assistance. The fixed costs of vehicle finance, wages, rents, insurance and utilities continue to be liabilities, but attempts at borrowing are impeded because the value of the primary assets, the vehicle fleet, is severely reduced in a situation of oversupply of used vehicles.

Banks are wary

The first questions from banks and lenders are typically, “Is your normal turnover more than R1 million per year?” and “What was your average monthly turnover in the last six months?” If it is less than R85 000 per month (200 km of short-haul operations per day), which is common in the Covid era, there is no assistance. As industrial production returns to some sort of normality, it is likely that transport supply and costs will become one of the factors impeding economic recovery.

The overall impacts of the pandemic have been negative for road freight transport, partly due to the excessive throttling of industrial activities and the restrictive regulations on the movement of vehicles. This is in complete contrast to the recommendations of the World Bank, which state: “Countries in Africa should strive to maintain trade flows during the crisis to secure access to medical goods and services, and food and other essential items such as farm inputs. This requires keeping borders open to the largest extent possible and avoiding measures such as export bans or taxes … reduce taxes and duties on trade, to streamline trade procedures and to support transport and logistics services in maintaining cross-border and international value chains.”

In the developed world, truck drivers have been hailed as heroes for continuing to operate in the face of the Covid risks, adhering to all safety protocols but delivering the goods. In most of Africa, the drivers have faced demonisation, xenophobia, illogical and punitive restrictions by police, very severe discomfort and dangers on long-haul trade corridors, and the continual threat of redundancy. Something needs to change!

Published by

Nick Porée

Nick Porée is a transport economist and freight transport consultant; he has more than 30 years of experience as a consultant in freight operations management, systems development, training and transport research. His company, NP&A, has for the past four years been the lead consultant engaged in cross-border and corridor studies in Sub-Saharan Africa. He was the freight transport consultant for the SADC/Tripartite project on “Liberalisation of Road Transport” and harmonisation of the Road Transport Regulatory Systems in ESA.
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