Historically, South Africa has been seen as a gateway into the rest of Africa, and as trade continues to increase both on and with the rest of the continent, the logistics involved in the transport of these products becomes increasingly important.

A survey published earlier this year, by the Council for Scientific and Industrial Research (CSIR), found that high costs were one of the biggest constraints to the logistics industry in South Africa, in addition to inadequate inland and cross-border transportation.

The same report, however, also suggested that South Africa has enormous potential to become the Southern African Development Community (SADC) region’s central logistics hub, which is particularly important with imports and exports growing at a rapid pace in Africa.

Gateway to Africa

“South Africa is increasingly becoming a regional logistics hub and gateway for trade into Africa. The African market is growing and as more and more countries and companies are gearing up for business, they are looking to South Africa for the provision of logistics and transportation,” says Simone du Plooy, brand manager for Imperial Logistics.

Du Plooy also notes that with “appropriate investment in our ports infrastructure, rail, intermodal capability, major corridors and border posts, South Africa can establish itself as the gateway into Africa, just as Dubai is the gateway to the Middle East, and Hong Kong into China.”

"South Africa can establish itself as the gateway into Africa, just as Dubai is the gateway to the Middle East" - Simone du Plooy

South Africa has a very close political and economic relationship with its neighbouring SADC nations, with 11 of its top 20 partners being African countries, eight of which are in the SADC region.

The level of trade flowing into the southern African region can also be expected to increase, if the hoped-for resolution to Zimbabwe’s economic crisis currently being thrashed out achieves a satisfactory conclusion.

“Once the Zimbabwean economy is resurrected, a lot of investment and capital will flow into the region via South Africa as the gateway,” says du Plooy.

Gavin Kelly, Technical and Operations Manager at the Road Freight Association (RFA), also notes that there has been an increase in the amount of cross-border freight movement in Southern Africa, noting that “this will further increase with the (possible positive) changes that are due to occur in Zimbabwe.”

Until fairly recently most companies barely even considered logistics in their long-term plans, says Barlow Manilal, National President of the Chartered Institute for Logistics & Transport South Africa (CILTSA). Manilal notes that this has begun to change, however, with the logistics industry’s strategic role now being recognised and implemented at the very core of business planning.

“The 2010 FIFA Soccer World Cup has served as a catalyst for the implementation of a number of infrastructure projects, increased investment and eliminating existing bottlenecks in our freight logistics system,” says Manilal.

Road versus Rail

Of the many infrastructure projects currently underway, parastatal Transnet is planning to spend about R80bn on developments to improve South Africa’s ports and rail infrastructure. Transnet Freight Rail (TFR) alone is spending R9.2bn on capital investment this year.

With its lack of capacity and old infrastructure, the rail industry has been battling to win market share in the freight industry, meaning more and more freight is being carried by road.

In fact, the CSIR survey published earlier this year found that all of the companies surveyed used road as their main means of transport, despite the fact that for some goods it would be cheaper to use rail transport.

“It makes a great deal of sense to use rail – it is better suited to bulk, it decreases congestion, and better serves the environment,” says Nireen Naidoo, Marketing Manager at Barloworld Logistics Africa.

“Whether or not the big users currently not using rail will change, will depend to a large degree on the ability of the service provider to convince the client that rail is reliable, cost effective and sustainable,” adds Naidoo.

The need to address this issue is a key factor in TFR’s spending plans, as Sandile Simelane, senior manager of communications at TFR, notes: “TFR is now focusing on recapturing key commodity freight that should never have been allowed to move on road.”

“There must be connectivity between road and rail but the logistics network planning must be based on modal strength and in this regard rail is undisputedly more efficient in high volume, long distances than road, whereas road is more efficient in small volume, shorter distance,” says Simelane.

Currently, however, more than 80% of all goods transportation in South Africa is done by road, due to the fact that the rail industry is unable to cope with the sheer volume.

“The current growth in the economy and population has necessitated greater flows of freight – which cannot be addressed by rail – and this is why there has been a growth in the road freight industry,” says the RFA’s Gavin Kelly.

“Currently, with the state of operations and capacity that exists with Transnet, the idea of moving anything to rail (from road) is a non-starter,” he adds.

One industry that is moving to tackle this issue is South Africa’s fresh produce export industry. Fresh fruit logistics is still dominated by road freight, though the Fresh Produce Exporters Forum has kickstarted a new initiative, called Tonnage of Tar, to find solutions to the rail challenge. 

The Tonnage of Tar initiative is being pursued alongside Transnet Port Terminals, Transnet Freight Rail and the National Department of Agriculture’s Engineering Services Division, with the aim of extending rail freight services to other fruit growing regions

Costs and other challenges

The need for further capacity on the rail networks is not the only constraint on the logistics industry in South Africa. Over the last year fuel prices were undoubtedly one of the biggest problems for the industry, and though the cost of crude has now abated, fuel costs are still one of the biggest costs involved.

In fact, costs in general are still a huge headache for the logistics industry. “The biggest challenge currently facing the road freight industry is ever-increasing costs, says Gavin Kelly of the RFA.

Mike Benney, managing director of FH Bertling Logistics, says one of the biggest cost constraints his company faces comes from employment, and that a shortage of skilled personnel is one of the industry’s biggest challenges.

“The shortage of skilled staff plays in favour of individuals and recruitment agencies. More emphasis should be given to making learnership programmes work,” says Benney.

The World Bank’s Logistics Performance Index, published earlier this year, ranked South Africa in 24th place out of 150 countries. In terms of logistics expenditure however, South Africa ranked 124th out of 150.

“South Africa needs to evaluate its high internal logistics costs and address the issues and challenges from government level, especially those related to inland and cross-border transportation through the development of ports, rail and our major corridors,” says Imperial’s du Plooy.

Speaking at the Africa Investment Forum 2008 recently, Lesotho’s Deputy Prime Minister Lesao Lehohla also noted that African countries have to start integrating their transport systems in order to reduce costs.

Lehohla noted that the cost of transporting products to the export market often amounts to about 50% or more of overall production costs in certain African countries, with landlocked states being the most affected by high transport costs.

A number of corridor initiatives, which should improve transport links around Southern Africa, have now cropped up, the first and most famous of which is probably the Maputo corridor, which is expected to improve links between South Africa and Maputo in Mozambique.

The Maputo Corridor has since inspired six other similar initiatives across Southern Africa with plans for Botswana to link up with Namibia’s Walvis Bay, and other corridors planned across Angola, Zambia and Zimbabwe.

Long-term outlook positive

Mike Benney notes that the current financial crisis will have an impact on the logistics industry. “We envisage the cancellation or mothballing of mining projects, as a result of collapsing commodity prices. Only the most viable projects will continue with increased competition we will see margins under pressure.”

In addition, Benney notes that those involved in general freight forwarding will experience a major slowdown, particularly in imports, due to the weakening currency. “The next 12 to 18 months could see the industry feeling the effects of the economic slowdown.”

“The next 12 to 18 months could see the industry feeling the effects of the economic slowdown” - Mike Benney

Gavin Kelly of the RFA says that like many other industry sectors, the outlook for 2009 is tough, with fuel costs, toll road costs, and general price increases putting pressures on operators.

“The economic outlook over the longer-term however, remains positive and it is important for us to bear this in mind when dealing with the short-term challenges,” says Kelly.

With the massive infrastructure plans currently underway in South Africa, in both the rail and road industries, Imperial Logistics sees a rosy future ahead.

“With an increased demand for trade and all the developments taking place, Imperial Logistics is of the opinion that the South African rail system domestically as well as cross-border into Africa will be improved greatly in the next five to ten years,” says du Plooy.

Greater cooperation needed between African nations

Barloworld’s Nireen Naidoo, suggests that South Africa’s logistics operators are on a par with the best in the world, but notes that the future for the logistics industry is dependent on a better working relationship on the continent.

“We need to work with our neighbours to further unlock African potential as a major provider of resources and food products to the people of Africa and the world,” says Naidoo.

In Limpopo this idea has already gained momentum, with the newly relaunched Polokwane International Airport currently awaiting the results of a feasibility study into becoming a central cargo hub for southern African countries.

Sipho Mthombeni, chief executive of Gateway Airports Authority Limited (GAAL), the managing company behind Polokwane airport, says the “benefit for freight and airline clients will be competitive discounted prices that will range from 25% to 40% lower than that of OR Tambo.”

“We are simply interested in facilitating air freight/cargo within SADC with a desire to create economic integration and liberalisation. We want air freight companies to get in touch with GAAL and negotiate deals that work to the benefit of all parties,” adds Mthombeni.

The various corridor initiatives currently under development across southern Africa should help to drive down cross-border transportation costs, thereby enabling the continent to better compete globally.

Whether by rail or road, greater cooperation between African countries is an essential ingredient for a thriving logistics industry in both South Africa and the wider SADC region.