Reforms in underperforming logistics sector too slow

Reforms in the sluggish logistics sector must accelerate urgently to address the widespread strain it faces.

The Ctrack Transport and Freight Index dropped to 118.8 in August, the lowest level since February (116.7), marking a 1.5% decline. This marks the third consecutive monthly contraction, confirming the sector’s ongoing challenges.

This contraction affects the entire industry, with four of the six measured sub-sectors declining both monthly and quarterly.

For the first time since February 2021, the overall index slipped into negative territory on an annual basis, as Hein Jordt, CEO of Ctrack, points out.

“Fragmented growth has defined the sub-sectors in recent months. With five of the six sub-sectors now tracking lower than a year ago, hopes of a significant recovery have dwindled. Only two of the six sub-sectors posted quarterly growth, with road, rail, and air freight lagging behind.”

Jordt highlights that only road freight showed positive annual growth, though it was modest.

“Road freight, historically the most resilient sub-sector, saw annual growth slow to just 1.7% in August, a stark contrast to the 28.2% annual growth in August 2022 and the lowest since December 2020.”

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Road freight doing better thanks to rail freight woes

Road freight, the largest sub-sector, has faced numerous challenges recently. Jordt notes it is still catching up, and a closer look at August’s figures indicates a tentative recovery. Road freight payload increased 1.6%, while heavy vehicle traffic on the N3 rose 5.5% monthly.

However, this growth follows ongoing rail freight issues. Despite this, road freight remains crucial to South Africa’s economy, moving 80% of goods, though its over-reliance comes at a high cost, being more expensive than rail and increasing road maintenance expenses.

“The recent surge in the international oil price, along with a renewed rand exchange rate depreciation, led to significant diesel price hikes. This is likely to push consumer inflation to a range between 5.5% and 5.9% in the coming months.”

These increases, both direct and indirect, are bound to negatively impact the fragile economy, says Jordt.

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Other logistics sub-sectors also not doing great

Sea freight, still recovering from the Transnet strike a year ago, increased by 3.1% monthly but remained negative compared to a year ago. Container handling is 11.1% lower.

“While the Transnet National Port Authority’s recent announcement of the privatisation of the Pier 2 container terminal at Durban created strong positive sentiment in an industry crying out for better port performance, it will take some time before a turnaround could be expected.

“The Pier 2 terminal handles 72% of the Port of Durban’s throughput and 46% of South Africa’s port traffic and therefore a notable improvement could be a game changer for the industry and the economy at large sometime in future only,” says Jordt.

Not surprisingly, the rail freight sub-sector also subsided further in August, remaining deeply in negative territory on an annual basis and declining by a further 7.0% year on year during August, the seventeenth consecutive monthly decline.

Air freight has also been under pressure for most of 2023 and declined by a further 1.7% on a monthly basis during August, while the sector remains just below its position of a year ago. The number of unscheduled flights typically chartered for cargo purposes, as well as cargo load on planes, both declined during August.

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Liquid fuel also deep in negative territory in logistics sector

Transporting liquid fuels via Transnet Pipelines increased 2.3% compared to July. The pipeline component of the index tracked moderately higher on a quarterly basis (+3.1%) but remained deeply negative annually, with a 15.4% decline due partly to a high base of calculation.

After shining in June, the storage and handling sub-sector of the index declined in July and August, dropping 2.4% monthly and falling 3.9% below last year’s level. Lower inventory levels in the economy spilled over into storage and warehousing activity.

Jordt said the index’s muted increase was surprising, given the transport sector’s underperformance in the second quarter.

“While the economic narrative remains generally static, with ongoing load-shedding, elevated interest rates, a lacklustre job market and low confidence levels, it is evident that sector-specific challenges also played a role in the transport sector’s underperformance during the second quarter.”