The State of Logistics in South Africa

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The South African logistics sector has long been plagued by consistently high costs and the 7th State of Logistics Survey shows no signs of the trend abating. The survey released on Tuesday 8 March by the Council for Scientific and Industrial Research (CSIR), IMPERIAL Logistics and Stellenbosch University found that between 2008 and 2009 total cost of logistics decreased by just 1.2%, from 14.7% to 13.5% of Gross Domestic Product (GDP).

These figures are considerably lower than forecasts estimated and indicate an under performing logistics sector. Considering the declining nature of the price of diesel and inflation, the two leading cost drivers, a drop closer to 12.5% could’ve been expected.

There was also a drop in total tonnage as well as ton/km of 4% and 3.7% respectively and less freight was transported in 2009.

On the environmental side, 23 million tons of greenhouse gasses were emitted due to land freight transport activities, 20.3 million tons of which was due to road freight.

The survey found that approximately one third of transport activity in South Africa is outsourced and also stated that growth opportunities were to be found in growth in outsourcing and not among available outsourced freight.
A call has been made for further collaboration between the private and public sectors to enhance the economic infrastructure and promote economic growth and job creation. In addition, it is noted that a move away from mediocrity and strive for world-class standards to ensure the envisaged 7% economic growth annually, for the next 20 years.

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The ample supply of a relatively cheap labour pool has long been an asset to South African retailers, until now they have been able to employ a large workforce (by international standards) while still being able to maintain healthy margins (again by international standards). An international FMCG retailer expects to operate on a margin of between 0.5 and 1.0% while in South Africa Retailers aim for between 4 and 6%, but that is a topic for another discussion.

The cost of labour in South Africa is increasing considerably and legislation is reducing the number of retailer friendly employment options, such as contract and casual labour. At store level, retailing is labour intensive and the cost saving potential is limited. However contemporary IT solutions provide a viable alternative to the traditional staff heavy approach. Small innovations, like electronic shelf labeling, can significantly decrease costs and improve productivity. Whilst full automation at store level is still a way off, retailers are prepared to invest in the right technologies to reduce the dependence on labour.

It is not going to be the store floor worker who will feel the impact for the race to reduce the overall employee cost. They are largely protected by unions and legislation, however we can expect a sharp drop in contract and casual work opportunities. The brunt of the blow will be felt in the management teams outside of the store.

In SA some retailers have done well to keep “non store” management costs low, but in other instances these costs appear to be substantially higher than the global norm. Centralization of management functions such as purchasing and logistics helps to reduce the management cost, but that’s not enough. As the overall costs of labour increase we will see pressure exerted by executives to cut management structures to the bone.

Whichever way you look at it, the retail industry does not look set to increase the number of people it employs in the near future. When you consider the valuable training, low level entry requirements and upward opportunities that retailing offers, you would expect Government to be bending over backwards to create an environment that would stimulate employment. In my opinion it should form the backbone of the nation’s job creation strategy. Instead we seem to find ourselves in a web of legislation designed to have the reverse effect.

For a concise summary of the amendments to the Labour Laws, click here.

  
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Consumers move to multichannel shopping

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There is an ever increasing number of consumers who browse through multiple retail channels to research and learn about products before making a purchase. Picking up on this development, retailers have been prompted to perk up multichannel practices including opening up online stores and enhancing internet retailing capabilities.

“Multichannel retailing refers to the concept of selling goods through multiple channels rather than solely through one channel, such as traditional brick-and-mortar stores. The additional channels that can be used to reach out to consumers include the internet, mobile devices and catalogs, each of which present unique benefits and drawbacks. To succeed in multichannel retailing, merchants must optimally utilize the benefits of a variety of channels.”

It is crucial that retailers combine multichannel efforts with existing ones to maximize the benefits. Although the number of consumers engaging in multichannel retailing is constantly on the rise, many customers still prefer the touch and feel of a new product before purchasing. A survey, conducted by commerce solution provider ATG, showed that about 40% of respondents who read catalogs never made purchases through them.

Selling through online channels can be marginally more profitable than selling through traditional stores but, online retailing also provides other advantages, “retailers can avoid the risk of stocking inventory, since merchandise can be shipped directly from the supplier to the customer.”

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