The road freight industry is finding it difficult to remain sustainable, with road freight demand to remain flat as a “best case scenario”, despite yearly inflationary growth and social growth trends, says industry body the Road Freight Association (RFA).
“Although about 860-million tonnes of freight are moved on road each year, the industry is fragile at the moment,” RFA technical and operations manager Gavin Kelly tells Engineering News, highlighting the slowdown in the general economy for the past two years, paired with increasing fuel costs as key causes.
While established freight demand has remained constant, a downturn in market demand for goods has led to a reduction in demand growth for new freight, Kelly points out.
“This translates into insufficient loads for the broader freight industry,” he says, noting that despite consolidated contracts remaining in place, the scope for expansion and new work has been negligible.
Kelly therefore believes that growth will not exceed 2% at current trends.
He adds that, while more than 80% of freight moved across land in South Africa is on road, this demand remains in place, owing to the current lack of alternatives and the non-development of new infrastructure to meet growth.
However, he points out that there is currently new freight demand in the central African region, as there has been large investment in infrastructure relating to social services and public transport in Malawi, Kenya, Zambia and Tanzania.
“This has created opportunities for local logistics companies to expand – but the general freight industry within South Africa has not expanded, as the expansion in Africa has been specialised and often went hand-in-hand with providing warehousing and inventory solutions,” Kelly says.
Besides current markets, the road freight industry will contend with several challenges in 2015, including broad-based black economic-empowerment (BBBEE) codes.
“The new BBBEE codes will prove to be a watershed, as business survival will be acutely affected. The new codes raise the bar considerably – with many operators facing the reality of dropping at least one level – and the key components of ownership and preferential suppliers are sure to raise much debate,” he notes.
The new amendment to the Codes of Good Practice for BBBEE – which include sector codes for tourism, transport, construction, forestry, property, information and communication technology and financial services – was gazetted by Trade and Industry Minister Dr Rob Davies on October 11, 2013. These codes replaced the existing BBBEE Codes of Good Practice when they came into force on October 11, 2014.
Kelly adds that the implementation of the new road traffic regulations and legislation, which aim to promote safety and were published in the Government Gazette in November, “seems to be more onerous and restrictive than actually addressing the problem”.
Meanwhile, Kelly highlights that since the implementation of e-tolls in December 2013, the industry has also experienced drastic profit reductions. “The average effect on the industry is significantly high, as the average operator must pass the costs on to someone else or they will lose between 9.2% and 16.8% of their net profit.”
Total turnover of the road freight industry for 2013 was R58.7-billion, while total expenditure was registered at R56.2-billion, and net profit after tax amounted to only R1.7-billion, according to the RFA.
Moreover, escalating costs within the logistics chain, much of which has nothing to do with transport, is draining any capacity to return decent operating margins or allow for expansion, Kelly says.
Similarly, the 40% average increase in licence fees from the Gauteng Vehicle Registration and Licensing Office, as well as the increasing cross-border road permit fees, have increased costs to such an extent that operators had to increase tariffs, Kelly says, adding that businesses have closed or moved to neighbouring States to conduct more profitable business.
In light of this, Kelly warns that government needs to ensure that roles and mandates within the industry are clearly defined – after which operators and industry associations can pursue any legal issues, noting, however, that these processes are lengthy and costly.
Nevertheless, the RFA highlights its feats in certain sectors, such as in pursuing legal action against the municipality of Emakhazeni, in Mpumalanga, and has reserved its rights regarding the claims of Maluti-A-Phofung, in the Free State, which sought to employ quasi-legal prosecution to claim funds for safety-related services or for illegal parking fines.
Kelly concludes that the RFA has achieved success in court, as the process of reclaim for the freight companies is under way and this will “hopefully send a strong message to other authorities wishing to fleece the transport industry in illegal ways”.