Transport and Logistics Sector Overview

Growth-Enhancing Reforms Are Key To Improving The Sector

By Sinazo Mkoko

Delivering his budget speech in February this year, Finance Minister, Enoch Godongwana, said the government is implementing growth-enhancing reforms in key sectors, including the transport sector, to boost growth and improve the efficiency of South Africa’s Transport and logistics infrastructure.

Hon. Godongwana said the public sector is projected to spend R903-billion on infrastructure, and the largest portion of this amount, around R448-billion, would be spent by state-owned companies, public entities, and public-private partnerships. The spending plans are mostly for strategic projects in different sectors, and transport and logistics would spend an estimated R351.1-billion, including for SANRAL to improve the road infrastructure network.

Addressing Transport and Logistics Constraints

The National Treasury stated that constraints in logistics have negatively affected economic growth and employment. “More than a quarter of long-distance freight traffic has shifted to roads in the past five years as a result of severe deterioration in the freight rail network. This is due in large part to historical underinvestment in the network.”

The National Treasury said several reforms are underway to support recovery in the transport sector, and the Economic Regulation of Transport Bill, which will establish the transport regulator, has been tabled in Parliament. In addition, several other reforms are in place to support recovery in the transport sector, which were also pointed out in the budget speech, including:

• Transnet is taking steps to improve operations in key corridors, for example, through software upgrades that will increase efficiency through better signalling.

• Additional intervention in the form of steps to prevent theft and vandalism and resolving legal challenges in relation to locomotive procurement.

• The operations and infrastructure management functions of Transnet Freight Rail are due to be separated by October 2023, a step intended to facilitate competition and improve pricing.

This was welcomed by the relevant stakeholders within the sector, with the Managing Director of Ctrack Africa, Hein Jordt, stating that they are holding thumbs that the proposed reforms are put in place efficiently and effectively as they are “most certainly required for the ongoing survival of many of the sectors of the transport industry.”

“The South African economy is in dire need of a functioning logistics network and all stakeholders should unite to address the obstacles in the industry. From this point of view, recent developments to address the sector’s challenges, as mentioned in the 2023 National Budget, is indeed a step forward and welcomed,” he said.

Freight Logistics Reforms: Ports and Rail

A decline in exports has been recorded due to the poor performance of South Africa’s freight logistics system. The Treasury said implementing these economic reforms was crucial to reversing the current trend in performance.

“Achieving a turnaround in the ports and rail network will have a positive impact on output, exports and ultimately economic growth. Interventions to improve operational performance, encourage private sector participation and enable increased competition and investment are required to arrest the sector’s decline.” - National Treasury.

The National Treasury shared the progress made to address challenges in the freight logistics system:

• Transnet Freight Rail (TFR) has completed the accounting separation of their operations and rail infrastructure units. This is a crucial step towards functional separation and the establishment of an independent Infrastructure Manager, which will enable transparent and accurate pricing of slots on the freight rail network and create a level playing field between public and private rail operators.

• Partnerships with private terminal operators at the Durban Pier 2 Container Terminal and Ngqura Container Terminal are expected to be in place by June 2023, following a process initiated by Transnet in August 2022.

• Transnet has established a multi-stakeholder Task Team to address congestion at the Durban Port, which saw the procurement of new equipment and refurbishment of current equipment and the introduction of a truck booking system. Transnet National Ports Authority(TNPA) has also finalised construction of the Bayhead Bypass Road, which will further ease congestion at the port.

Ctrack, a leading South African company in the fleet tracking industry, which provides insights on the transportation and freight sector, stated: “The Ctrack Transport and Freight Index increased by 1.5% in January following a monthly decline of 3.4% in December (and declines in the preceding three months). On an annual basis, the Ctrack Transport and Freight Index ended 2.1% higher than a year earlier, a far cry from the annual growth rate of 13.7% recorded in August 2022. The sector has faced many headwinds during 2022.”

Ctrack Transport and Freight Index Changes

Jan 2023 Tables:

According to Ctrack Africa, the performance of four sub-sectors, including Rail Freight, Storage and Warehousing, Sea Freight and Pipeline Transport, remain below levels from a year ago. This, they said, strongly indicates that the sectors have still not fully recovered from the impact of the KZN flooding in April 2022 and the Transnet strike in October 2022.

Ctrack noted that Road Freight remains the most resilient of all sub-sectors, recording growth of 15.9% year on year at the end of March 2023. Air Freight has remained stagnant compared to a year earlier.

Ctrack Transport and Freight Index Quarter growth rates in sub-components:

Sources: PwC | SONA | Operation Vulindlela | The Treasury | Ctrack Transport and Freight Index | Stats SA | Ctrack