As geopolitical tensions across the world continue to rise, South Africa’s logistics sector is faced with an increasingly challenging environment in which to operate, both locally and globally.

Internationally, trade and supply chains are being disrupted in many ways by numerous wars and political stresses. From the ongoing trade challenges created by the war in Ukraine, to the recent problems arising from the conflict in Gaza, global logistics has suffered significantly.

A good example here is of the recent missile strikes on ships in the Red Sea. These have resulted in sea freight cargo either being delayed in transit, or being forced to divert around the Cape of Good Hope. Both scenarios result in increased transit times, as well as raised costs, while at the same time reducing the availability of products and equipment in the markets for which these cargoes are destined. 

It has been suggested that diverting a tanker from Asia to North-West Europe, via the Cape of Good Hope, doubles transit time and thus adds nearly $1 million in additional costs to the journey. Similarly, a study by the GAIN Group intimated that Transnet’s collapse – both ports and rail – cost SA in the region of R1 billion a day (R353 billion for the year) in economic output in 2023, and some R411 billion in 2022.

The climate crisis is also negatively impacting this space, as weather patterns become increasingly volatile and extreme, creating additional challenges around both global capacity and trade routes.

Local challenges

These global crises create even greater problems for South Africa (SA), which has other logistical concerns to deal with. The country’s ability to compete in global markets at all depends on the efficiency of its ports and rail network, and neither of these are currently in the best shape. 

As the operator of both the nation’s ports and railways, Transnet is facing numerous challenges. State capture has damaged the organisation’s effectiveness, while additional issues, like the impact of the pandemic and rising levels of theft and vandalism of its rail infrastructure, have created something of a perfect storm of problems. 

In addition, equipment shortages and maintenance backlogs further impede Transnet’s ability to deliver the services required by the logistics industry. 

The ongoing infrastructure challenges have resulted in a massive decrease in the volume of goods transported on the rail network, resulting in a shift to road transport, with all the attendant congestion, emissions and road damage this creates, along with a concomitant increase in costs.

From the perspective of the ports, huge delays are being incurred in ports, leading to shipping lines struggling to balance capacity demand, as vessels are delayed, some by upwards of three weeks. Exporters, including South Africa’s mines, suggest that they have lost millions of dollars as a result, all of which creates knock-on effects within the SA economy. In fact, according to SA Revenue Services Commissioner, Edward Kieswetter, the estimated economic impact of the poorly performing freight rail system is R100-billion.

What is encouraging in this otherwise bleak scenario is the appetite demonstrated by Transnet to leverage public-private partnerships (PPPs) as a way to overcome many of the challenges outlined above. Such PPPs will potentially include upgrades to the Port of Durban, a proposed KwaZulu-Natal (KZN) Logistics Hub development, as well as investments in the ports in Cape Town, Coega, East London and Saldhana Bay.

In fact, PPPs to upgrade port infrastructure could hold the key to solving port congestion, along with stimulating high levels of investment in logistics infrastructure locally. 

Similarly, plans are afoot to separate Transnet Freight Rail (TFR) from the Transnet Group, thus creating a new independent rail entity that will need to compete with private entities, something that is planned for April 2025.

The South African National Rail Policy has opened up a space for the private sector to invest in equitable access to both the primary and secondary rail network, opening it up to other operators to compete and improve operational efficiency. With private actors involved and investing in the network, this should help eliminate many of the bottlenecks facing rail. 

A brighter future

There is no doubt that Transnet has a great opportunity to access and leverage best practices and skills from the private sector, while such an approach will also enable the industry to showcase its innovation in creating world class ports and rail infrastructure.

These PPPs should also benefit the broader economy in numerous ways, including: the opportunity to build confidence for future PPPs; the transfer of skills to employees; significantly improving competitiveness and the reputation of South Africa’s exporters and importers; job creation; and installing confidence for future investments from both local and international companies.

Looking ahead to a brighter, PPP-driven future, businesses will not only be presented with greater opportunity to enable and upskill employees, but will potentially even be able to consider alternative sourcing options that will allow them to gain competitive advantages. 

Moreover, with logistics costs reduced and efficiencies improved through such an approach, businesses will be able to channel these additional funds into: digital platforms to push and pull information in real time; technologies to drive efficiencies and; big data solutions to deliver effective analyses.

However, while the future appears brighter, there remain many complications and challenges, not to mention other cost issues and exchange rates that can negatively impact businesses. One should never underestimate the importance of having the right partner to help guide you through these potentially choppy waters.

Taking into account the challenges outlined above, and the digital investments required to take your business to the next level, you will need a strong financial partner to have your back. An institution that can provide relevant advice in relation to dealing with the many and varied risks inherent to business, and that consistently keeps an eye on the broader geopolitical situation, while at the same time fully understanding the interconnectedness of the supply chain.

Funding – which is vital if you wish to grow your business – is an absolutely critical part of the supply chain, and is why you need a lending partner that understands both the industry and your specific business, and is invested in its ultimate success. DM/BM

By: Denys Hobson, Head of Logistics at Investec

About Investec

Investec partners with private, institutional, and corporate clients, offering international banking, investments, and wealth management services in two principal markets, South Africa, and the UK, as well as certain other countries. The Group was established in 1974 and currently has 7,400+ employees.

Investec has a dual listed company structure with primary listings on the London and Johannesburg Stock Exchanges.