​​​For a decade South Africa has been measuring its national logistics costs in a standardised, internationally benchmarked way. The Logistics Barometer presents the latest results of this national cost measurement and drills down to investigate the trends that influence these costs – from the oil price to outsourcing to the impact of modal strategies and infrastructure development.​

Why?

The second edition of the South African Logistics Barometer continues the macrologistics research work published in the CSIR State of Logistics Survey for South Africa (discontinued in 2014) and the first Logistics Barometer published in 2015. It fits into a growing global body of work to measure national level logistics costs and links to the World Bank Trade Facilitation and Logistics Global Knowledge Network.

The Logistics Barometer provides a numerical analysis of logistics costs trends in South Africa supported by insights from logistics industry specialists and academia. The usefulness of calculating annual data lies in the fact that trends can be identified and applied by both operational and strategic analysts in the public and private sector for future planning, policy development and investment objectives on a macroeconomic level. The calculations in this edition are up to 2014, with an estimate for the 2015 year, and a forecast for the 2016 year.

At 11.2% in 2014, South Africa’s logistics costs as percentage of GDP deteriorated slightly compared to 2013, and this trend is expected to continue. The ratio generally improved up to 2011, but has been on an upward trend since then.

South Africa is still one of only three countries who consistently measures and publishes logistics costs on a national level, the other two being the U.S.A. and Finland.

The Logistics Barometer has, as its backbone, more than 20 years of research into freight volumes and freight flows in South Africa. The logistics cost calculations have been refined over the past 13 years to make it one of the most robust and reliable quantitative reports on logistics costs globally.

The source data for the logistics cost measurements originate from the Transnet Freight Demand Model (FDM), GAIN Group’s National Freight Flow Model (NFFM), StatsSA’s Annual Financial Statistics Survey (AFS) and StatsSA’s Quarterly employment statistics (QES).

Where?

South Africa’s gross domestic product (GDP) totalled R4 014 billion in 20151 and although it has claimed back the title of Africa’s biggest economy from Nigeria due to exchange rate fluctuations, both economies look to be on the brink of recession mostly due to the decline in export commodity prices.

Average GDP growth for South Africa equalled 2.1% between 2011 and 2015, but the International Monetary Fund (IMF) adjusted the growth forecast for 2016 to only 0.1%, recovering to 1.0% in 2017. Nigeria’s economy is forecasted to retract by -1.8% in 2016, recovering to 1.1% in 2017. Both countries are well below the forecasted world output growth of 3.1% in 2016 and 3.4% in 2017.

The Logistics Performance Index (LPI) provides a comprehensive measure of the efficiency of international supply chains. South Africa was ranked 20th out of 160 countries in 2016 and is classified as a logistics over-performer when compared to its peers. When looking at the performance over the aggregated LPI (2010-2016), South Africa is only one of two countries in the top 30 that are not classified as high-income countries, the other being Malaysia.

South Africa’s logistics costs totalled R429 billion in 2014 and equated to 11.2% of GDP or 51.5% of transportable GDP. Logistics costs increased by 9.2% between 2013 and 2014, after showing modest growth of only 3.5% in the previous period. It is estimated to have grown by 9.5% during 2015 and is forecasted to grow by 6.3% in 2016, in line with current inflation estimates.

The phenomenon from 2012 to 2013 of logistics costs rising faster than the underlying transport activity (measured in tonne-km) was reversed in 2014 with a relatively larger growth in tonne-km than real costs. The growth of low-value transport relative to other categories could have contributed to this phenomenon.

How does South Africa compare to other countries?

Over the past number of years more countries have attempted to measure logistics costs, some only as a once-off exercise. It is worthwhile therefore to provide a comparison between these countries although various ways of measuring exist and different economic and structural factors influence logistics costs.

Developed countries would have lower logistics costs when expressed as a percentage of GDP, the outlier being Finland, which has a low-outsourcing environment and a long cash-to-cash cycle. The developing countries also each face their own challenges. India is densely populated with high congestion and inadequate infrastructure, infrastructure also being the biggest challenge for efficient logistics in all the BRICS countries. Russia has long transport distances to contend with, Brazil has port operational challenges and China has one of the highest regulated logistics industries in the world.

South Africa’s infrastructure challenges in a BRICS context are therefore not unique and performance on LPI measurements not poor. But the country is far away from trading partners, has long inland transport distances, relies heavily on unbeneficiated exports, and has a much smaller economy than the other BRICS countries, which is also growing slower than most. The country is therefore vulnerable to external shocks and logistics cost reduction needs to be a priority.

Trade supply chains

The 13 years of measuring South Africa’s logistics costs included measurements of international trade logistics costs within South Africa, i.e. up to the quay wall landside for exports and from the quay wall landside for imports. Port costs and ocean carrier costs to foreign ports were excluded and it was therefore always a domestic cost measurement. The work was recently expanded to include these aspects.

The impact of international trade logistics costs (ITLC) on national logistics costs is depicted in Figure 8. The country’s total ITLC (up to and from foreign port gates) is R242 billion or 11.7% of trade GDP (i.e. the value of all traded commodities, amounting to R2 061 billion). Only 9.5% (R23.1bn) of these ITLC are paid directly to ports (port authority and port terminal charges).

This means that direct port costs are only 1.1% of the value of trade. As a direct result of South Africa’s spatial challenges, the highest portion of these costs is the inland logistics, being 41.8% (R101.1bn). That is because our centres of production and consumption are far from ports. Given South Africa’s distance from global markets, the contribution of ocean carrier costs is also significant, at 39.2% (R94.9bn).

The costs, up to the point when ships leave port gates or arrive in front of port gates, amount to close to R46bn (port charges, documentation charges and ship standing costs) (‘Other’ is composed of truck standing costs and inventory carrying costs, which is negligible). About half (50.3%, R23.1bn) of these costs are paid to the port authority and terminal operators. The rest is additional costs caused by documentation and additional transport costs due to the delay of ships in front of and in the port. Of the R22.8 billion (R16.8bn + R0.77bn + R5.2bn) remaining additional costs, around three quarters (73.7%) are documentation charges.

Only 3% is because trucks are delayed before and in the port and just under a quarter (22.8%) because ships are delayed in front of and in the port. A very small cost is also incurred for the financing of delayed inventory (ICC). Significantly though, these other port-related charges are more or less equal to the direct port charges. More significant is the fact that most of these charges are documentation charges or relates to what the World Bank perceives as the ease of doing business. (Please note that in this research, delay also includes “normal” turnaround time (i.e. it is impossible to turn trucks and ships around in no time), but it can always be improved. The data indicates the baseline number from which it can be improved.)

Transport costs are the dominant contributor towards logistics costs, amounting to 57% of the total in 2014, followed by inventory carrying costs (15.2%), warehousing (14.6%) and management & administration costs (13.5%).

The contribution of transport costs to total logistics costs is expected to decline to 55% in 2016 mainly due to lower fuel prices (fuel costs made up 40% of road transport costs in 2014). This is the lowest contribution level it has reached since 2010.

Transport costs showed a moderate increase of 3.7% between 2013 and 2014, still driven by efficiency gains from logistics service providers.

The trade-off was that inventory carrying costs increased by 21.8% between 2013 and 2014. The increase in the prime interest rate from 9.0% at the start of 2014 to 9.25% at year-end, compared to 8.5% in 2013, contributed to the higher inventory carrying costs, but external factors such as economic uncertainty and a volatile currency have led to increased inventory levels and are forecasted to have the same effect in 2016.

On the back of these higher inventory levels, warehousing costs (which include storage and handling costs) increased by 12.1% between 2013 and 2014, following on nominal growth the previous two years, and is estimated to have grown above inflation in 2015.

Road transport contributed 83% to transport costs in 2014, rail tariffs contributed 15% and pipeline tariffs contributed 2%.