Logistics sector still in trouble despite positive developments

The logistics sector was still in trouble during February despite positive developments aimed at reforming the sector and making it work properly again. There is still a long road ahead before South Africa will experience any notable impact of the interventions.

After declining abruptly in January, the Ctrack Transport and Freight Index subsided further in February to an index level of 118.6, a drop of 0.8% compared to January’s level of 119.6. It was also at its lowest since February 2023.

However, compared to a year earlier, four of the subsectors still increased, with only road and air freight contracting. While the interdependence and intertwined nature of the logistics sector softens the overall impact of weakness in some sub-sectors, the sector remains on the back foot overall and in urgent need of intervention and structural reform, Hein Jordt, CEO of Ctrack, says.

“Recent developments are encouraging, including the approval of the Freight Logistics Roadmap, the appointment of a permanent board for the Transnet National Ports Authority, the passing of the Economic Regulation of Transport Bill and the publication of a draft network statement detailing how private sector access will be governed.”

He says while industry reacted negatively to the level of the proposed tariffs included in the statement the option for private sector participation is at least on the table and negotiations can start.

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Road traffic must move to rail in logistics sector

In a report titled ‘Decarbonising South Africa’s Transport Sector’ published in 2023 that is based on research done as part of the Climate Pathways and Just Transition Project run by the National Business Initiative (NBI), in partnership with Business Unity South Africa and Boston Consulting Group, the conclusion was reached that for South Africa to cut greenhouse gases (GHGs) in the transport sector to net-zero by 2050 between 15% to 20% of road traffic must move to rail.

The report noted that this shift will also be key to tackle road congestion and improving the efficiency of the overall transport system.

Jordt says that some progress has been made to stem the deterioration of rail freight. However, the approval of the Freight Logistics Roadmap is crucial. This roadmap provides a clear reform path to resolve immediate operational challenges driving the decline of rail and ports. It also outlines interventions required to fundamentally restructure the logistics sector through policy and legislative interventions. Despite these efforts, it will take a long time before any notable impact of interventions will be seen.

After five years of annual declines, rail freight payload increased by 2.5% in 2023, off an extremely low base and clearly continuing to underperform given ongoing challenges plaguing the sector, such as large-scale theft of copper cables, insufficient maintenance, lack of locomotives, corruption, derailments and vandalism of freight trains.

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Road freight sector accounts for 84.5% of freight payload

On the other hand, he says, the road freight sector, which has grown notably in recent years and now accounts for 84.5% of all freight payload in South Africa, experienced multiple headwinds during 2023, but still managed to increase by 1.5% in 2023, compared to growth of 21.7% in 2022 and 8.9% in 2021.

“The sub-sector remains the backbone of logistics in South Africa, although it comes at a cost to the economy, as road transport remains notably more expensive than transport via rail.”

The road and rail freight sub-sectors subsided in February, signalling that many challenges remain in 2024. The rail freight sub-sector declined by 3.0% compared to January which saw a hefty drop, taking the index almost 10% lower compared to the end of 2023. Road freight declined by 1.0% on a monthly basis in February, the fourth consecutive monthly decline.

Jordt says sea freight remains one of the main focus areas of South Africa’s structural reform efforts and some of the shorter-term interventions at ports are starting to bear fruit. After tumbling in October and November, reflecting the inability of ports to handle cargo due to a multiplicity of contributing factors, the sea freight sub-component started to recover in December and continued its recovery in the early months of 2024.

ALSO READ: Chaos at ports will cost the country, businesses and consumers

Container handling and air freight increased

Container handling increased by 22.1% in February compared to January, although off a low base, while other cargo, excluding cars, increased by a solid 8.1%. One of Durban port’s pockets of excellence, the Durban Car Terminal (DCT), recently moved its 600 000th vehicles through the terminal in the current financial year, up from 531 755 fully built-up units over the preceding 12 months ending on 31 March 2023.

The air freight sub-sector increased 1.2% in February, following a decline of 3.0% in January. The underlying data for the sector were mixed in February with strong growth evident in cargo load on planes (+10.4% up compared to January) as well as in global cargo tonne-kilometres. Declines were noted in the number of unscheduled flights (typically chartered for cargo purposes) and in consolidated airport flight movements.

The storage and handling sub-sector declined 0.6% on a monthly basis in February but remains 20.0% above year ago levels.

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Logistics star performer in fourth quarter

Jordt points out that the release of South Africa’s gross domestic product (GDP) statistics early March revealed the transport sector was the star performer in the fourth quarter of 2023, growing 2.9% compared to the third quarter.

“The transport and logistics sector is the backbone of the South African economy. The inability to effectively move products to and from markets comes at a cost, which has a negative impact on the whole economy.”

He says it does not only subtract from economic growth, given that products are not timeously available for trading, but the cost of products is typically higher given inefficiencies.

“An improvement in the efficiencies of the logistics sector could have a positive multiplier impact on the economy as a whole, much needed for South Africa.”