Major change necessary for logistics, supply chain - survey

The bottom line shows that logistics costs in South Africa for 2007 were R317 billion - 15.9% of GDP - up by 1% from the previous year. One of the biggest logistics problems in South Africa is internal logistics costs and these figures indicate a further rise, which will reduce the country's logistics competitiveness.

SA transport costs above global average

Commenting on the results of the survey, Hans Ittmann, executive director of CSIR Built Environment said: "Given the global economic crisis, it is fitting that this year's survey is titled 'Logistics value and cost drivers from a macro and micro-economic perspective'. Pressures to reduce logistics costs are even more acute in the South African context, where transportation costs are now measured at 53% of total logistics costs, 14% higher than the world average at 39%. Being far away from all our sources of imports, still relying heavily on transport via road versus rail together with a significant increase in inventory costs, stakeholders within the industry need to constantly evaluate their costs closely, collaborate with peers and be determined in finding best cost options."

Costs doubling

Research shows that transport and inventory carrying costs are on an alarming upward trend, even when real increases are considered. Inventory carrying costs have doubled over the past four years and transport costs have increased by more than 50%. Road and rail are still the predominant means of freight transport, contributing to 99% of all logistics costs and the market share split for goods transported by road and by rail is 87% and 13%, respectively. These conditions point to an unsustainable and high risk situation. A viable domestic intermodal solution that will reduce risk and lower costs is essential as well as innovative solutions in terms of inventory management.

Effective SC management is key

The survey highlights the value that is created in the logistics sector through effective supply chain management. Three important cost drivers, namely fuel, collaboration and skills development are addressed. Demand-side analysis indicates that employment figures remain mainly flat or are declining slightly for the transport, storage and communications sector. Supply-side analysis suggests that all indicators, in relation to the economy, are declining.

Future solutions for South Africa's freight transport skills problems will have to focus on technical skills development involving all sectors of the industry. On the subject of collaboration, the survey looks specifically at the impact of this on the aerospace industry.

"The rapid increase in logistics costs, especially in our current economic climate, is an issue of concern. Manufacturers and Logistics Service Providers should move to get rid of inefficiencies in their supply chains and ensure that they are well managed," says Marius Swanepoel, CEO of Imperial Logistics. "More than ever, we find ourselves in a changing environment. When making optimisation decisions, companies should be careful not to rely on history or their experiences. They should rather engage with professional logistics and supply chain management companies in their search to innovate and improve services, whilst cutting costs."

Other findings

The survey provides quantitative facts and figures on the state of logistics in South Africa and focuses on pertinent issues in the logistics and supply chain sector. It examines the effect of worsening road conditions on the economy by a limited case study indicating that trucks travelling on roads with a bad riding condition rating could experience enormous increases in costs. Green supply chain management is also a focus and the question whether green logistics is a cost burden or value creator is discussed.

The State of Logistics Survey is available for download at www.csir.co.za/sol and www.imperiallogistics.co.za/sol.