The world is changing fast and to keep up you need local knowledge with global context.
Civil unrest and looting sparked by the arrest of former president Jacob Zuma has seen Gauteng and KwaZulu-Natal bucking under pressure, as violent protesters damage property and steal from businesses. Late last week, trucks carrying cargo were burned to the ground, with Bloomberg reporting an estimated 35 trucks destroyed in the inferno. Below, Gavin Kelly, CEO of the Road Freight Association, highlights the seriousness of the sorely affected supply chain affecting long-haul distribution. He notes that the short-term damage has already cost the industry billions of rands, but the long-term effects are still to be recognised. Not only will there be loss of income for drivers and employees, but for the companies too. There’s the possibility of logistics companies shutting down, which would mean fewer trucks and transporters to carry out work. “The consumer will foot the bill for what has happened – through both indirect charges relating to the cost of logistics, the need to build reserves to repair damaged infrastructure and as goods become scarce.” – Jarryd Neves
By Gavin Kelly*
Road carries 80% of South Africa’s goods. Simply put: when trucks stop, South Africa stops. The opportunistic mass looting occurring in KwaZulu-Natal and Gauteng and the wanton destruction of trucks and goods has spread to the wholesale and retail sectors and distribution centres in these two Provinces – and there is a real and imminent danger this will spread to other Provinces. What started out as sporadic incidents on one or two routes, has now spread to the total supply chain, affecting the transport legs (all forms, whether local or long-haul), as well as destinations and originations. With the total supply chain now being impacted, the economic effects are far reaching – but the collapse of the supply of all goods will be the immediate result.
Short-term losses already run into billions of rands; the long-term impact is yet to be fully realised:
- Depending on the category of vehicle, the type and value of cargo, and the specialised equipment required for the cargo: this can be anywhere between R3 to R10 million per vehicle. A simple calculation of capital losses (assets and cargoes at an average of R5-million per vehicle) of the 40 trucks destroyed to date amounts to around R250 to R300 million. And whilst we write this statement, more vehicles are being destroyed;
- The cost of loss of income through businesses closing is far greater: There are instances where small businesses have lost their only truck, or trucks. This means loss of earnings / revenue for the business, loss of salaries paid to staff who would no longer have jobs (due to business shutdown), loss of revenue through the services and support the business uses (eg. fuel, storage, maintenance, tolls, staff requirements, licensing, etc);
- Inability of employees who lose their jobs to support their families and the retail businesses they frequent in supporting their families’ needs;
- Potential closure of businesses means less transporters available to perform work. Some companies might feel the industry is not a safe / secure environment and so their owners could decide to simply close their business;
- Freight travelling through South African ports (especially the Port of Natal and along the corridors that have been targeted): cargo owners / customers will choose to move cargo through neighbouring countries. This has already been happening as South African ports become inefficient and the surrounding ports develop, improve and drive efficiencies up. South Africa’s “Gateway to Africa” status was already being eroded and under threat over the past three years of violence against the road freight sector. The status has been lost and these attacks will further cement the move of transit freight from South Africa to neighbouring countries. Even local companies and logistics providers are looking at alternative export / import routes away from the KZN corridor (and our OWN ports). Port revenues will drop, as will income through all support and related freight logistics users;
- Costs relating to insurance will increase, as the risk to insurers has increased over the last three years, partly as a result of the constant attacks on freight. The evidence is clear that road freight is attacked as it is an easy target and the looting prospects are huge in terms of the quantity and the variety of goods that can be looted;
- Security costs will increase, as logistics companies are forced to employ guarding services. Routing will change to safer (but perhaps far longer) routes, where control is easier.
The consumer will foot the bill for what has happened – through both indirect charges relating to the cost of logistics, the need to build reserves to repair damaged infrastructure and as goods become scarce. Supply and demand will dictate cost – and if supply cannot meet demand, demand will drive prices up.
The looting and destruction of retail points (from small businesses to large malls, from regional to national distribution centres and warehouses) will force closures, whilst damages are ascertained, repairs are done and stock levels are replenished. There will be shortages. Some companies have already noted they will not re-open and the direct job losses (in those companies) and the indirect job losses (from all their service providers) will be huge. The cycle of unemployment will continue to spiral upwards.
What cost are we looking at? The cost to operational assets (vehicles and infrastructure) is just the tip of the iceberg – and as reports come in, this will grow exponentially. We are already looking at billions of rands in the total logistics supply chain – without factoring in the damages to commercial retail space.
The costs to commercial retail and other related damage will be phenomenal – and the impact on the investors and owners of these facilities has not been factored in, as yet.
The cost to families and communities where jobs will be lost, will be crippling. Millions will be lost in salaries and wages – but more importantly millions of people will become destitute. The long term implications of this have not been factored in yet.
The damage to the South African economy will run into billions of rands, as business confidence drops, foreign investments plummet or are withdrawn, and those who use South Africa as a transit hub, turn away from us and move to other countries that are safer and more efficient.
A State of Emergency needs to be declared – immediately. The time has come for the gloves to be taken off.
Law and order needs to be restored and the perpetrators /instigators/ inciters of the violence and destruction of our economy must be harshly dealt with. The Minister of Police previously referred to such activity as economic sabotage. Then the government needs to treat it as such and deal with it in the appropriate manner.
The country’s infrastructure, people’s lives and livelihoods and the right for all citizens to live in a safe environment have all been trampled upon by those who wish to have their will imposed.
This must stop. NOW. Mr President – do what is necessary to protect the people of South Africa.
We need directed, focused, firm and resilient control by you to stop what is happening.
- Gavin Kelly is the CEO of The Road Freight Association.
- “Will these events spark a big rethink, and change South African politics?” – Jonathan Katzenellenbogen
- SA cannot become a “destabilised state with weak institutions” – corruption thrives there
- Major food shortage expected in the wake of mass looting, protests
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.