Page 14 - Case Study Annual 2015
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Expressing logistics costs as a percentage of shedding disrupts operations indirectly. This necessitates
transportable GDP paints a slightly starker picture, a number of mitigating actions such as additional
creeping over the 50% mark from 2012 onwards. labour to compensate for lost time, or installation
This implies that half of the landed cost of agriculture, and maintenance of uninterrupted power supply – all
mining and manufacturing goods is incurred by ensuring incurring additional costs. Issues relating to labour
products are at the right place, at the right time. productivity and wage increases have also added to
Clearly logistics deserves special attention – not only in costs in recent years. The gravity of ongoing electricity
industry boardrooms, but also within government. The and labour concerns could edge warehousing costs
contributors to logistics costs in 2013 were transport into the limelight previously dominated by inventory
(59,8%), inventory carrying costs (13,5%), warehousing carrying cost and transport.
(14,3%), and management and administration (12,5%).
Cost impacts on logistics
Changes in the underlying input costs have a
definite, albeit delayed, effect on industry behaviour These cost factors are all input costs to the delivery of
with changes in one year moulding the behaviour of the time and place utility. While it is useful to measure,
industry in the next year. The fuel price and the prime track and predict the impact these drivers have on the
lending rate changed drastically in 2011, spiking and logistics bill, they do not fully explain why SA logistics
dropping, respectively. This caused a knee-jerk industry costs are what they are. These costs are mostly invisible,
reaction that had a definite impact in 2012. Both so it is difficult to discern their cost impact.
the volumes (tonnes) and transport intensity (tonne-
kilometres) dropped off, a result of a more cautious The demand and supply of logistics is transport
consumer base as the fuel price dented disposable intensive. Every rand earned requires more kilometres to
income. At the same time, the lowered lending rate be travelled than in most other countries. Immediately
provided supply chains with some respite – edging the the distance of Gauteng to the ports of Durban and
balance in favour of higher inventories, longer storage Cape Town springs to mind, but consider also the
times and reduced transport frequency. influence of the country’s economic structure.
During 2012 the fuel price continued to increase, SA greatly depends on manufactured imports funded
but at a much lower pace while interest rates showed predominantly by the bulk export of minerals and
a slight increase. The impact this had in 2013 was a agricultural products. If the manufacturing industry
slight bounce back in volume growth as consumer was greatly bolstered, the reliance on imports would
sentiment relaxed a little, but the industry’s drive decrease, negating many trips between the ports and
towards streamlined transport activity continued with Gauteng. Exporting low value commodities from the
reduced last-mile distribution. Another change in cost centre of the country also yields very low financial
trends emerged with the fuel price rising and the returns. A stronger manufacturing sector would shift
interest rates dropping to an all-time low. The impact exports up a few notches in the value chain, earning
on inventory levels in 2014 is estimated to again the country more for the same number of kilometres
be significant, the reason for this being the sheer travelled. Approximately 75% of SA’s freight belongs
size of inventory investment and the executive-level to the primary economy. These raw materials (locally
attention this receives. However, the country’s on-going sourced and imported) are conveyed domestically
electricity issues have made industry (and consumers) to production centres. The related logistics systems
extremely cautious. require expensive infrastructure and adequate bulk
logistics handling capability to ensure efficient, low-cost
Transport costs remain significant production and global competitiveness.
Despite the trend changes over the past five years, The secondary economy makes up the remaining
transport remains the most significant portion of logistics 25% of the country’s freight. Comparatively, the logistics
costs. More than 80% of transport costs (85,1% in 2013) systems required to service manufactured freight are
are due to road transport with rail tariffs at 11% - 13% far more complex. This freight is handled and shipped
and pipeline tariffs 2% or less in recent years. Even with multiple times as it moves through networks of terminals
reduced tonne-kilometres in 2013 the total fuel bill and distribution centres. Its contribution to GDP is also
was still higher than in 2012, owing to the higher price far greater.
of diesel. Slight decreases were seen in other variable Long travelling distances are observed for most of SA’s
costs, notably driver wages, depreciation and insurance. logistics systems. Overall, the largest average transport
distances (ATD) belong to mining dry bulk, palletised
SA’s current electricity conundrum has impacted and refrigerated commodities – three commodity classes
warehousing costs significantly in two ways. The direct that comprise the greatest majority of the total tonnes
impact of electricity price hikes in recent years is moved in the economy. Coal, iron ore, aggregate stone,
evident across the board, but especially in temperature cement, bricks used in building activities and processed
controlled and heavily automated warehouses. Load foods account for 61% of the total tonnes. •
12 the logistics news case study annual 2015
