SA Logistics must make bold steps to drive costs down

Increased fuel price still biggest cost driver

Rising costs and the global economic situation spell out increased competition and tighter margins in the logistics industry. Driving down the cost of logistics and making South Africa more competitive will require no less than bold steps forward, finds the 10th State of Logistics Survey.

Published by the Council for Scientific and Industrial Research (CSIR) in collaboration with Imperial Logistics and Stellenbosch University, the survey reports that South African logistics has moved beyond survival to an optimised mode, where costs, inventories and lead times have been minimised within individual supply chain functions.

“The results of the survey indicate that it’s not a case of improving our current methods; we have to do South African transport completely differently,” said Nadia Viljoen, Scientific Editor of the 10th State of Logistics Survey.

This year’s survey looks back over a decade of measuring logistics costs while for the first time providing a forecast of the current calendar year’s costs.
In 2012 the absolute cost of logistics was R393-billion, 2013 is estimated at R423-billion and 2014 is forecast to be between R456-billion and R470-billion, depending on fuel inflation.

Logistics costs as a percentage of GDP have remained at a stable level of 12.5% for 2011 to 2013 and are forecast to show a slight increase in 2014, again depending on the magnitude of fuel inflation.

Fuel cost pressure

A deeper investigation of individual cost components and cost drivers shows that the increase in logistics costs is perhaps not the result of deteriorating efficiency in the industry, but rather the disproportionate growth in cost drivers – especially fuel.

Fuel is overarchingly recognised as the main driver of transport costs (at 25-30% a few years ago and now sitting at close to 40%), however, driver wages are also pushing up costs quite a bit, said Jan Havenga, Director at the Centre for Supply Chain Management, Stellenbosch University.

“Driver wages have always been the number two in terms of transport costs, but if one considers current events [in the platinum belt] and what happened last year in the trucking industry, we are becoming aware of how important your people are in your organisation foundation, which touches again on the skills issue,” said Viljoen.

“But I’m still more concerned about fuel cost,” said Havenga, “because it is something external to us (we import it), and it’s hard to project; reputable sources ten years ago forecast the crude oil price today to be $30 – $45 a barrel – they were out by a factor of more than two – the same margin of error carried forward means we’ll be dead!” jested Havenga.

“The fuel economy of road trucks has improved by about 10% in the last decade,” said Paul Nordengen from the CSIR, but the cost of fuel price increases far exceeds any efficiency cost savings. A route to significant fuel and energy efficiency improvements lies in rail, said Sandra Gertenbach, Executive Manager at Transnet Freight Rail.

“We need to increase the tonnage that the country moves by rail. This will take advantage of, for example, the capability that [Transnet is] implementing into its electric locomotives enabling them to regenerate electricity back into the grid, [thereby] lowering the cost of transport.”

Demand driven pressure

While we must focus on increased fuel efficiency and moving more to rail, we must also look at what drives the demand for logistics, said Cobus Rossouw, Chief Integration Officer at Imperial Logistics.

“South African consumers are becoming more demanding, placing pressure on logistics to move smaller loads to more locations while balancing cost pressures. The challenge is: how do businesses operate and take bold steps forward while continuing to make these tradeoffs in the logistics system?

To that end, the study, in conjunction with the Department of Trade and Industry, is beginning to consider the influence of the country’s economic production on logistics, and vice versa, said Viljoen. Furthermore, the pair is considering how the drive for local production will change the way freight flows in our country.

“Is there a role for logistics in making this change possible, to help local trade flourish?”

Download The 10th State of Logistics™ Survey for South Africa is downloadable at: www.csir.co.za/sol and at www.imperiallogistics.co.za/stateoflogistics

Panellists, from left to right:
Cobus Rossouw, Chief Integration Officer at Imperial Logistics
Jan Havenga, Director at the Centre for Supply Chain Management at Stellenbosch University
Paul Nordengen from CSIR
Derek Watts, State of Logistics’ host
Hans Ittman, Owner at HWI Consulting
Nadia Viljoen, Scientific Editor for the 10th State of Logistics Survey
Sandra Gertenbach, Executive Manager at Transnet Freight Rail.