The public and private sectors should strengthen collaboration to deliver economic infrastructure that supported growth and job creation, the seventh State of Logistics survey, released on Tuesday, stressed.

The Council for Scientific and Industrial Research (CSIR), Imperial Logistics and Stellenbosch University, which compiled the research, noted that government recognised the significance of logistics and supply chain management for the competitiveness of the country.

CSIR executive director of built environment Hans Ittmann said that government’s New Growth Path document highlighted that bottlenecks and backlogs in logistics hampered economic growth and increased costs.

“Supply chain performance will be mediocre unless the organisation, people, skills sets, and culture are world class. If we settle for such mediocrity, South African business will be sluggish, generating sub-standard economic growth,” he noted.

Ittmann added that cutting the total cost of logistics by applying innovative, pragmatic thinking holds the key to the contribution of logistics to improved global competitiveness for the country.

The survey, themed ‘Value Creation towards Global Competitiveness and Sustainability’, found that South Africa’s consistently high total cost of logistics decreased by just 1,2% between 2008 and 2009, from 14,7% to 13,5% of gross domestic product, indicating an underperforming logistics sector.

Ittmann pointed out that total logistics costs should have been significantly lower in 2009, owing to the financial crisis and contraction of the economy.

“It would have been fair to have expected this percentage to have dropped to a level of closer to 12,5%, given the downward changes in the two leading cost drivers, namely the sharp drop in the price of diesel and in the interest rate,” he said.

The survey stated that, while investment in transportation infrastructure had been necessary, it had been costly, with the effect of the recovery of infrastructural development costs over the next few years causing major concern.

Dr Jan Havenga of Stellenbosch University said that total tonnage and ton per kilometre decreased by 4% and 3,7%, respectively, in 2009. Less freight was transported in 2009, with a reduction in transport costs of 9,2%, which was much less than the fall in the price of diesel of 28,3%.

“Transportation costs, which have always been the highest cost element locally, seem to be equally high contributors to logistics costs in most other countries, whereas our administration costs remain comparatively high,” he noted.

In 2009, the average inventory requiring financing increased by 15,2%, from R416-billion to R513-billion. Inventories relative to output increased from 17% to 21% between 2007 and 2009. Havenga explained that as the recession deepened, inventories built up due to lower consumption.

“This, in turn, led to larger inventory holdings that needed to be financed and also to less efficient transport, owing to lower volumes and more empty-hauls. Inventory carrying times increased from 12 to 15 days on a weighted average basis,” he noted.

The survey indicated that South Africa is underperforming in terms of harbour efficiencies. Referring to a recent study commissioned by the Ports Regulator, it cited that the Durban harbour was found to be the most expensive among 12 international harbours used for benchmarking, and its productivity was rated the lowest overall.

The survey also showed that about one-third of transport activity in South Africa was outsourced.

“The major growth opportunity for road hauliers is not among available outsourced freight, but rather growth in outsourcing, often achieved by total logistics arrangements that can highlight savings on cost of ownership.”

Imperial Logistics CEO Marius Swanepoel said that, while traditional supply chains offered benefits such as reduced costs, faster delivery and improved delivery, these advantages were no longer sufficient in the modern business world.

“A new paradigm is emerging where supply chains should also serve as a vehicle for developing and sustaining competitive advantage under a variety of performance objectives,” he noted.

Swanepoel added that effective outsourcing could reduce logistics costs by optimising loads, orders and capacity.

“Only as good as their weakest link, supply chains should provide one or more of six basic outcomes, namely cost, responsiveness, security, sustainability, resilience and innovation,” he concluded.