Labour costs, the effect of the exchange rate on the price of vehicle parts and carbon tax are some of the biggest challenges affecting the freight and logistics industry, says logistics and supply chain management company Crossroads MD Arend du Preez.
He notes that labour is a major cost for companies and employers are struggling to maintain the wage increases in the sector.
Many vehicle parts are imported and, with a lower-valued currency making South Africa’s imports more expensive, the costs of truck maintenance and repairs are more expensive for the company, Du Preez adds.
Meanwhile, government introduced its Carbon Tax Act No 15 of 2019, which came into effect in June, 2019, to address the global issue of climate change caused by carbon emissions and other greenhouse gases (GHGs). The objective of the Act is to meet the country’s nationally determined contribution commitments in terms of the 2015 Paris Climate Agreement, and to reduce its GHG emissions in line with the National Climate Change Response Policy and National Development Plan that was published in October 2011.
Taxpayers are liable for carbon tax should they conduct one of the activities in Schedule 3 of the Act, above the threshold for that activity. Carbon tax will be levied on the sum of GHG emissions from fuel combustion, industrial processes and fugitive emissions, determined in accordance with a reporting methodology approved by the Department of Environmental Affairs.
Emitters will be required to license their activities liable for carbon tax, and payment of this environmental levy will be due in July of each year. A separate tax on emissions from petrol and diesel has been incorporated into the fuel levy system from June 5, 2019.
The tax rate is set at R120 a tonne of carbon dioxide equivalent produced, with yearly increases of consumer price index plus 2%. To allow businesses time to transition, a basic percentage-based threshold of 60% will apply for all sectors, below which tax is not payable. Over and above the basic 60% tax-free threshold, there are additional allowances that apply to various sectors and businesses, such as trade-exposed sectors and companies that have a better carbon performance than their peers. There will also be an offset allowance of 5% or 10%, depending on the sector, which can also significantly reduce how much carbon tax is paid. The total tax-free allowances during the first phase, which is up to the end of 2022, can be as high as 95%.
Carbon tax is included in the capital equipment outlay of Crossroads, with the company making strides to limit the carbon footprint of its operation using more fuel efficient equipment, says Du Preez.
He points out that Crossroads has moved towards using a cleaner fuel that is 50 parts per million, which is highly refined with low carbon emissions. The company is also limiting the use of electricity, water and business travel by reducing the number of kilometres travelled through enhanced route planning.
“There is definitely a drive in the industry to monitor and control the carbon footprint, which is also increasingly becoming a tender requirement.”
Further, the seasonally adjusted volume of freight transported by road in South Africa increased by 9.5% in 2018 but decreased by 4.3% in the first quarter of 2019, according to Statistics South Africa’s Land Transport Survey, published in May 2019.
According to the ‘Freight Transport by Road in South Africa 2019’ report, published by online research database Research and Markets in June 2019, industry participants indicated that the increase in fuel costs and a poor economic environment have placed pressure on clients and eroded margins.
Du Preez comments that, amid a freight and logistics sector struggling with the effects of a general economic setback, Crossroads predicts a negative outlook for the sector, with more shrinking to occur in the next four years.
As a result, this would require “rethinking and redesigning how we do business”, without sacrificing important aspects, he adds.
“Everyone is under pressure in terms of margins, from the transporters to the clients, so we have to be careful to still nurture the basics, one of which is ‘safety.”
Meanwhile, logistics and freight companies are concerned about the attacks on drivers and trucks. Du Preez explains that these violent acts have a “huge impact on our industry because the drivers in other countries, such as Zambia and Zimbabwe, are retaliating against South African drivers, and burning our trucks and tyres but, much worse, they’re killing one another”.
He adds that the attacks on foreign national drivers and vehicles, with reciprocal attacks in other countries, is encouraging companies to make use of road links to sea ports in neighbouring countries rather than use Durban Harbour. This, unfortunately, has a further negative impact on the South African economy.
“The pressures of the economy and the attacks on drivers and equipment erode margins. One of the fundamentals of the industry that gets affected by tight margins is, inevitably, safety.”
He concludes that freight and logistics companies would have to revisit their short- and medium-term strategies, as “cutting costs alone will not be enough –you have to go beyond that to deal with what the economists are forecasting ‘will be a four-year slump”.