Truck industry mainstay of SA’s economy
Country’s road transport contributes 9% to economy
THE IMPORTANCE of the road freight industry to South Africa’s economy is underscored by the fact that 86 percent of the amount of freight transported annually in the country is transported by road.
Gavin Kelly, the technical and operations manager for the Road Freight Association of SA (RFA), said the latest e-Natis figures showed that there were 557 795 commercial vehicles above 3500kg on South Africa’s roads, including trailers but excluding special vehicles.
Kelly added that according to Statistics SA road transport contributed 9 percent to the economy and a total of 103000 formal and informal employees were employed by the road freight sector.
However, Kelly said the SA Transport and Allied Workers Union claimed 300 000 people were employed by the sector.
Cost effective Frank Beeton, a consultant at Econometrix, an independent economic consultant firm, stressed the importance of road transport to the economy and the country.
Beeton said road transport was not cheaper than rail but shippers were prepared to pay for road transport because it was reliable, predictable and cost effective.
However, both the road and rail transport sectors are in trouble.
Economists.co.za’s chief economist, Mike Schussler, said in the latest edition of the RFA’s Truck Talk that the latest data from Stats SA revealed that rail tonnage on a three-month moving basis had declined for 13 consecutive months on a year-on-year basis while road freight had a long 14 months of year-on-year declines.
Schussler said for the first time since the new Stats SA time series started there was a year-on-year decline in rail tonnage followed by another yearon-year decline a year later.
“This very rarely happens in any industry and must now be akin to a depression in the rail industry as income has also fallen for many of those months. The rail operator has been caught out by the huge decline in commodity prices and volumes.
“The investment in new track and rolling stock could not have been timed worse. It is clear that rail is in crisis brought about by a commodity downturn in bulk commodities of coal and iron ore,” he said.
‘This is (the) worst industry crisis since the great recession…’
In regard to road freight, Schussler said the sector had not just experienced a simple recession but a long hard period with many firms going out of business and tight budgets overall.
“This is (the) worst industry crisis since the great recession but the last three-month payload had increased and particularly containers and the manufacturing sector did well as manufacturing of food and some other products have improved despite the drought,” he said.
The strain being experienced by the road freight industry is evident from the number people employed in the bargaining unit, with a total of 3 987 employees retrenched last year and 2 450 retrenched so far this year.
According to the transport department’s national transport master plan, which was updated in June, demand for road freight on most of the country’s national corridors was expected to increase in the period to 2050, with the number of road freight vehicles anticipated to increase to more than 1million by 2050.
The department added that cross-border traffic would rise to more than 1million freight vehicle border crossings annually by 2050.
But Kelly said all estimates would need to be revised given the current economic climate.
He said the number of operators in the road freight industry had shrunk by about 3percent over the past two years, with micro, small and medium operators plus a few large operators largely affected.
“The industry is under severe pressure and the closing of many mining operators has severely curtailed traditionally large tipper fleets,” he said.
Competition Schussler highlighted the strong competition between rail and road transport, adding that prices had declined in real terms.
He said all land transport industry players had increased the price per ton by low single digits in the past roughly two years, with the price per ton transported increasing by 4.5percent for road freight and by 6.7 percent for rail transport since July 2014.
However, Schussler said general inflation had increased by 11.3 percent in these two years, indicating that both rail and road price increases were below the rate of inflation.
Wage increases in both industries had also increased by between 1 percent and 2 percent above the rate of inflation a year, which was partially offset in the road freight industry by the decline in oil prices while the rail industry suffered badly because of the 20.6percent electricity price increase, he said.
Schussler said it was a battle for survival in land transport sectors when costs increased and income declined.
However, Schussler said it appeared that rail freight might have cost increases of twice the rate of road freight.
“This will bring a big fight for market share by all the players. I suspect the big orders for new rail trains will end up being much smaller and it will be difficult financing the coming infrastructure spend,” he said.
This is a reference to Transnet’s planned R380billion seven-year rolling infrastructure investment plan.
Schussler had further bad news for the road freight industry, stressing that price pressure would continue for some time, wages would not be able to increase above the rate of inflation and there would be massive consolidation in the industry.
Challenges But Schussler said rail would have to increase prices significantly because of the lack of income from the two commodity lines, which would result in even more switching from rail to road.
Beeton said the most important challenges facing the road freight industry was that rail wanted to take its business away and the reintroduction of the permit system, which had been officially motivated by the need to try and reduce traffic and wear and tear on the roads.
But Kelly was adamant there was no threat to the road freight industry.
“The reality is that rail cannot meet the demand from customers and to customers in terms of reliability, cost, security of load, service from door to door and efficiencies.
“Road will always play a role in transport. The lessons learnt here and across the world show this,” he said.