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  • The economic toll of port and rail inefficiencies

The economic toll of port and rail inefficiencies

06 October 2023

At the heart of South Africa’s economy lies a colossal transportation network comprising both port and rail. However, recent years have witnessed a decline in its efficiency, resulting in economic losses that ripple far beyond its infrastructure. Siyabonga Mthembu, Audit Partner at BDO, and Lance Petersen, Chair of the Nelson Mandela Bay Business Chamber’s transport and logistics task team, share some insight into how these inefficiencies are not just logistical hiccups; but are causing a tide of economic devastation that the nation cannot afford to ignore.

It has been estimated that the collective cost of port and rail failures over the last 18 months is in the region of R150 billion. From another perspective, the collapse of Transnet is set to cost the country R1 billion a day in economic output, the equivalent of 4.9% of our country’s annual GDP or R353 billion. Take a moment to let those numbers sink in.

Recognising the gravity of the situation, President Cyril Ramaphosa has agreed to establishing a National Logistics Crisis Committee (NLCC) following the business sector’s urgent appeal. While this promise of a radical intervention gives the economy some hope, is it a case of too little too late?

One of the main areas that requires immediate attention from all sectors is rail. The current state is that the number of locomotives and rail movements are far below the installed capacity of the South Corridor running between the Eastern Cape and Gauteng.

Challenges include the lack of locomotives, as has been reported in the press. The quickest solution in terms of a timeframe to getting much needed locomotives would be the Chinese suppliers. However, this route has been plagued by obstacles and even the visit by Minister Pravin Gordhan and his delegation to China does not seem to have resolved all the issues. Looking at alternative suppliers to service the locomotives would increase the timeline to 18 months minimum.

Another problem is the ongoing issue of cable theft. While this scourge seems to have infiltrated all areas of society, the impact on rail has been immense as electrified rail locomotives cannot run if the supply of electricity to the line is interrupted. Currently the automotive industry alone is spending millions on armed escorts for their cargo that is being transported on road which should be on rail. This added cost is passed on to the end consumer at the end of the day.

The case to move cargo from road to rail is strong. Immediate benefits would include a reduction in trucks on roads, reducing accidents as well as reducing the need for rehabilitation of roads; reduction in impact of carbon emissions with rail being much less carbon intensive than the thousands of trucks on the road per day; and a reduced cost of transport with rail being far more economical than long distance road transport. However, this move cannot even be considered with our country’s rail infrastructure in the current state of disrepair.

In terms of shipping, Over the past couple of years and exasperated by the impact COVID had on the shipping industry, we have seen a marked reduction in the number of vessels calling at our 2 ports. With South Africa, and the Eastern Cape specifically home to automotive, perishable, and wool industries, all of which are export focussed, the ability to ship on a regular basis and on a reliable schedule is imperative to meet the obligations that they have entered into with customers around the globe.

Durban, South Africa's busiest port, has been grappling with congestion issues for years. Inefficient handling of cargo, long waiting times for vessels, and the inability to adapt to increased demand have led to extensive delays and financial losses for businesses. These delays ripple through supply chains, causing companies to incur additional costs and miss out on lucrative opportunities.

For Coega, port inefficiencies in one of the country’s poorest regions in terms of unemployment, the impact is palpable as we see the region taking a massive financial knock. The citrus industry as an example has had an extremely trying three years. The 2022 season saw 5.7-million fewer cartons exported than what was initially predicted at the start of the season. While these vessel omissions impacted the volumes in 2022, specifically adding to the necessity to dump some product towards the later part of the year, a strong end to the season in early 2023 saw volumes exceeding prior year. With an estimated 30% of the export having to load out of other ports, the financial impact was an additional R250m spent on transport.

Our country, and in turn our economy, needs a functioning logistics network. But as the nation grapples to recover from the failure of yet another parastatal, those bearing the brunt of the port and rail inefficiencies are facing an increasingly tough time. We must lobby for a collaborative, coordinated and focused approach from business and government before we will start to see movement in the right direction. We cannot afford to ignore these problems any longer; the cost of inaction is simply too high.