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News: Post-Transport Month business considerations

After a month dedicated to building awareness of South Africa's transport sector, both the private and public sector should take cognisance of logistics' contribution to economic development - and the need for renewed commitment to increased collaboration through public-private partnerships (PPPs).

As logistics and supply chain processes enable or disable a country's expansion and growth and thereby, its global competitiveness, South Africa's rating of 28th out of 155 countries on the global Logistics Performance Index (LPI)* indicates an increasingly competitive sector, with the potential to outperform much larger, more established economies.

Excluding high income countries such as Germany and the USA, South Africa is among the top 10 logistics over performers in the survey, keeping company with the likes of China and India.

The World Bank Report, though generated through qualitative research, links logistics performance with economic impact. It states: "Improving logistics performance has become an important policy objective in recent years, because logistics has a major impact on economic activity. Better logistics performance is strongly associated with trade expansion, export diversification, the ability to attract foreign direct investment and economic growth."

"Logistics performance is impacted by efficiencies in customs clearance processes, ease of arranging competitively priced shipments, competence and quality of logistics services and critically, the quality of trade and transport-related infrastructure," says IMPERIAL Logistics Marketing Director, Abrie de Swardt.

From a quantitative perspective, the economic contribution of logistics can be assessed by the total cost of logistics in relation to Gross Domestic Product (GDP).

The 6th State of Logistics™ survey, produced by the CSIR in collaboration with IMPERIAL Logistics and Stellenbosch University reports that South Africa's total logistics costs (2008) were 14,7% of GDP, the lowest they have been since 2004.

Comparatively, US total logistics costs were at 9,4% (2008) and 7,7% (2009). In the context of an emerging market such as South Africa, however, our 14.7% indicates a positive move, despite it simultaneously indicating that our freight costs remain high.

Dr Jan Havenga from Stellenbosch University's Centre for Supply Chain Management forecasts that lower administered prices and lower demand will outweigh the drop in efficiency and that logistics costs, relative to the GDP, will be lower in 2009.

He explains, "Logistics costs are a function of three key factors. Demand for logistics services, the efficiency at which these services were supplied and administered prices. The most important administered prices are the fuel price and interest rate. Both decreased substantially in 2009 - much more than the contraction in the economy."

Dr Havenga says that during 2009, first indications are that transport demand, which makes up approximately 50% of logistics costs, especially for long haul transport, also declined much more than the decline in the economy.

"The effect on inventory levels is still uncertain, but the system was most likely less efficient in 2009. Transport service providers were forced to move less economical loads as shipments declined due to the recession," he adds.

In the US, 2009 saw in the region of 25% of total ocean shipping capacity sitting idle. Commenting on findings of the US State of Logistics Report ('The Great Freight Recession'), Supply Chain Digest columnist Dan Gillmore states that "since ships ordered in prior years kept coming, that didn't help rebalance capacity very much. As a result, rates fell precipitously, and the ocean carriers did everything they could to cut costs, including so called 'slow steaming' to save bunker fuel. And that impacted service dramatically".

The Report finds that the US trucking industry lost some 2000 firms in 2009, a loss of 12.5% of total capacity, with predictions for another 2000 failing in 2010.

In terms of rail, carriers idled some 500,000 cars by mid-2009, a level which fell just barely to 450,000 idled cars by year end. Where an average of 2-3% of cars are idle under normal market conditions, these numbers represent some 32% and 28% of these car totals, respectively. Thousands of locomotives were also parked, leading in total to some $43 billion in assets sitting idle.

In South Africa, rail is a key part of government's plans to move both freight and passengers from road to rail. De Swardt argues that road and rail must complement each other to a greater degree. "Investing in rail alone brings with it a high level of risk and lack of adaptability. Solutions that optimise southern Africa's end-to-end supply chain must be identified, including the way that South Africa's rail, road, inland terminals and ports are integrated."

October 2010 has highlighted some important issues that government is addressing, with it articulating a strong consumer focus. Moving forward, business needs to intensify its collaborative efforts with government to maximise the massive investment in infrastructure.

De Swardt says that infrastructure is the springboard for growth and development. "Business is committed to support government to ensure that the return on investment delivers sustainable benefits to the South African economy, and that the contribution of logistics to economic growth is optimally leveraged to this end."

"At the launch of Transport Month, the honourable Minister of Transport, Mr Sibusiso Ndebele said that South Africa's future lies in being able to move people and goods faster, efficiently and in a cost-effective manner. Business plays a major role in moving not only goods, but our country's long-term economic prosperity," concludes de Swardt.

*2010 World Bank Report 'Connecting to Compete: Trade Logistics in the Global Economy'.

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