One of South Africa’s most important industries is having a good start to 2023
The South African logistics sector had a good start to 2023.
According to the Ctrack Transport and Freight Index, the logistics sector recovered considerably in January – however, this was from a low base after being hit by several headwinds in 2022.
The Ctrack Transport and Freight Index increased by 1.5% in January, following a 3.4% decline in December 2022. Year-on-year, the index ended 2.1% higher than the year prior.
However, this was a major reduction from the annual growth rate of 13.7% in August 2022, as the sector saw declines in the last four months of 2022.
The sector faced numerous headwinds in 2022 and will likely be in recovery mode during 2023.
Most notably, the strikes at state-owned transport company Transnet were a significant drag on the logistics sector in the final months of 2022, with the dire state of the rail industry not helping.
During the Budget Speech last week, Finance Minister Enoch Godongwana said that the constraints in the logistics sector are negatively affecting 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. Prolonged power failures and poor operational performance of transport industries continue to hamper operations and investment in manufacturing, mining and agriculture.
“Several reforms are under way to improve the performance of the transport sector, specifically freight rail and to improve the capability of the state,” the minister said.
The private sector was also invited to find a possible solution. The government wants greater competition in transport and logistics via third-party access to the freight rail sector, which is now in a pilot phase.
Other reforms were introduced to help support the transport industry’s recovery, such as the Economic Regulation of Transport Bill being tabled to Parliament which will create a transport regulator.
In addition, Transet is trying to improve operations in several key areas – software upgrades, for instance, will improve efficiency via better signalling.
More interventions will also help to prevent theft and vandalism and resolve legal issues regarding locomotive procurement.
Operations and infrastructure management functions of Transnet’s Freight Rail will also be separated in October 2023 to help improve pricing and facilitate competition and improve pricing.
Ctrack said it welcomes the steps to address the rail freight challenges as it was the worst-performing sub-sector in the Transport and Freight Index in 2022 – declining by 26.3% year-on-year (YoY) in January, which was the tenth consecutive decline.
“It is very heartening to see that the transport industry formed such a big part of this year’s budget speech. We can now only hold 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,” said Hein Jordt, Chief Executive Officer of Ctrack Africa.
In addition, the dismal state of Rail Freight means that there is a growing number of trucks on South Africa’s roads which has a negative effect on the quality of the road network and has accelerated the need for maintenance.
The allocation of an additional R12.4 billion will rehabilitate provincial roads, reducing road rehabilitation and strengthening the backlog on national roads. The budget will thus increase from R61.8 billion in 2022/23 to R85.5 billion in 2025/26
It was also announced that the South African National Roads Agency Limited (Sanral) will increase the length of the network in active maintenance – increasing from 1,200 kilometres in 2022/23 to 2,400 kilometres in 2025/26. The length of the network in active strengthening will be increased to 600 kilometres by 2025/26.
The number of heavy trucks on the N3 and N4 increased in January 2023 as the Road Freight payload in the country grew.
The Road Freight component of the Ctrack Transport and Freight Index increased by 17.0% YoY – the 22nd month of double-digit annual growth.
The Air Freight sector, 2022’s star performer, moderated in 2023, with the air Freight component of the index declining by 1.8%.
There was lower demand for air cargo as global economic headwinds affected trading partners.
The Sea Freight component of the index declined by 9.8% YoY in January but did increase from December (9.6%). This reflects a hesitant recovery in Transnet’s port activities following the October 2022 strike.
The Storage and Handling sector declined by 16.6% Yoy in January, while the Pipeline index also decreased by 2.1% Yoy.
2023 expectations
The December 2022 Ctrack Transport and Freight Index (112.1) declined from the September level (120.7), meaning the transport sector negatively affected economic growth in the fourth quarter of 2022.
The transport sector is likely to underperform compared to other sectors. The prolonged Transnet strike last year affected various other industries, with the manufacturing and mining sectors seeing negative growth rates as they are highly dependent on the transport sector.
The impact of the strikes, load shedding, the high cost of living, increased production costs due to high fuel prices, higher wages and increased interest rates are likely to contribute to the country’s dismal economic performance into 2023.
“The South African economy is in dire need of a functioning logistics network amid all the economic woes currently plaguing our country 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,” said Jordt.
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