TRANSNET FOCUS ON LOGISTICS INTEGRATION AND THE IMPACT ON SOUTH AFRICAN ECONOMY

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TRANSNET FOCUS ON LOGISTICS INTEGRATION AND
THE IMPACT ON SOUTH AFRICAN ECONOMY
Conference July 2004
Leapeetswe Papi Molotsane Group Executive
(Logistics Marketing) Transnet Ltd
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• Agenda
• Definition
• Logistics role in connecting South Africa into
  Global Trade
• The impact of Logistics on the SA Economy
• South African Reality
• Results of an inefficient logistics system
• Results of an efficient logistics system
• Transnet focus on integrated logistics service
• Benefits to be realised

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• Definition

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Logistics

• Logistics is a part of supply chain process that
  plans, implements, and controls the efficient,
  effective flow and storage of goods, services and
  related information from the point of origin to
  the point of consumption in order to meet
  customers requirements

Source Strategic Logistics Management, Douglas
M. Lambert James R. Stock
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• Logistics role in connecting South Africa into
  Global Trade

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Logistics role in connecting South Africa into
Global Trade
Major Global Trade Route
Major Global Trade Route

• Africa is at a distinct geographical disadvantage
  with respect to world markets
• Sources located far from ports therefore
  increasing costs of low value commodities
• South Africa runs the risk of being excluded from
  major Global Trade Routes

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• The impact of Logistics on the SA Economy

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Logistics is a significant component of GDP in
South Africa with an estimated total cost
contribution to GDP of 18
Based 2002 research
There is a need to reduce logistics costs by
having an integrated logistics service in South
Africa
Jan Havenga, Head Consulting, USB-ED
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Comparison of total logistics costs on GDP
United States
South Africa
8.8 of US GDP
18 of SA GDP
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• South African Reality

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Government Policy Perspectives onTransport and
Logistics
DPE
NDOT
Reposition the transport sector as an enabler of
growth and development.
Drive efficiencies to streamline SOEs.
Transport, as an input factor should have
competitive rates. Contribute to economic wealth
Moving South Africa
DTI
Efficient integrated transport system across all
modes paramount to improving competitiveness
mobility
Integrated Freight To Improve Competitiveness
Environmental Protection Road User Fuel Levy
DME
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Comparative Logistics Cost
Logistics cost as of GDP

Variation of 23 (Hungary 27 - UK 4)
SA
of US GDP (Source Wilson Delaney, 2000) of
Hungary GDP Spent on Logistics (Source MSA,
1997) of Global GDP Spent on Logistics (Source
MSA, 1997) of Europe GDP Spent on Logistics
(SourceEuropean Logistics Comparative Costs and
Practice, 1998) of UK GDP Spent on Logistics
(SourceEuropean Logistics Comparative Costs and
Practice, 1998)
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Foundation of the MSA Vision
The transport vision integrates the needs of
transport customers and the needs of
policy-makers, while meeting the objective of
system sustainability.

• Sufficient reinvestment levels
• Externalities minimised
• Profitable industry

System Sustainability

• Reliability and transit time
• Decreased prices
• Tailored systems for large and differentiated
  customers

• Export competitiveness
• Decreased burden on the fiscus
• Redistribution and development
• Employment

National Policy Objectives
Customer Needs
To provide safe, reliable and fully integrated
transport operations and infrastructure which
will best meet the needs of freight and passenger
customers at increasingly high levels of service
and / or lower levels of cost in a fashion which
supports government strategies for economic and
social development whilst being environmentally
and economically sustainable.
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MSA Creating Aligned System

• One of the major challenges for transport is
  creating a system that is - unlike at present -
  aligned for success, where the component parts
  are strong and where the behaviours required to
  upgrade the transport system are effectively
  signalled

Global Competitors
Set agendas for . . .
Local Demand

• Articulated goals
• Scale segments
• Powerful
• Affordability

Customer Goals
Institutional Regulatory Environment Supports.
. .

• Focused on upgrading factors and inputs which
  assist long-term value creation

National Goals
Supporting Industries

• Clear policy goals
• Priorities set

Signal value needs (short and long-term) to...
Signal requirements of and upgrades from . . .
Competing Operators

• Understand customer needs
• Invest to meet needs
• Manage sustainability
• Returns derive from high value proposition to
  customers

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Predicted Freight Volumes
Moving SA Findings Expected Freight Volumes

• Key issues
• Integration
• Capacity
• Industrialisation
• Cost reduction

The majority of freight customers are
geographically concentrated, requiring transport
from dense industrial locations to destinations.
These are fed by relatively dense corridors
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Customer Demands for Logistics Services in SA
Customers are increasingly asking for one-stop
shipping
Demand for optimised back and front end processes
Increasing pressure to internationalise
Customers are becoming more global and focusing
on core business
Scale and complexity of Logistics services
required is increasing
Demand for integrated, information rich solutions
Increased Customer Expectations
Lower Contract Margins for Logistics Services
0
20
40
60
80
100
Strongly Agree
Agree Somewhat
Neutral
Disagree somewhat
Source Accenture, SA Logistics Market Survey,
March 2002
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Supply Chain focus areas for Supply Chain
Executives in South Africa Logistics plays a
key role
Measuring your supply chain against best practices
Optimization of individual supply chain functions
Demand Forecasting
Collaboration
Re-engineering of the total supply chain
Integration of process within an individual
supply chain function
Integration of entire supply chain
Integration of two or more supply chain functions
Outsourcing of supply chain functions
Sub-contracting of supply chain functions
Reverse logistics
0
10
20
30
40
50
60
Source 2003 Supply Chain Foresight Study
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Requirements for advanced Logistics in SA (DTI)

• Strong hinterland logistics systems that can
  integrate with global logistics
• Efficient intermodal logistics systems and land
  interfaces
• Optimised, efficient and flexible transportation
  system (Modes and Nodes e.g. ports terminals and
  warehouses)
• Transport fully integrated into the production/
  manufacturing system
• Understand cost behaviour of entire logistics
  system
• Strong relationships between shippers and
  carriers
• Trade Documentation ease of access
• Strong Logistics Information Systems integrated
  into manufacturing and purchasing

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State of the National Logistics system

• Failing for deeply entrenched structural reasons.
• Inherently unsustainable - does not provide for
  the core needs of customers.
• The sector has few quick fix solutions
• Allocating money for infrastructure will have
  poor returns within current context
• Backlogs in infrastructure investment severe
• High-level issues as perceived in the rail and
  ports arena which hamper delivery to customer
  expectations
• Operational inefficiency
• Reliance on old and poorly maintained assets and
  outdated systems
• A costly labour force, with skills not aligned to
  operational technical advancements in the sector
• The lack of a focused commercial incentive to
  deliver to customer requirements

Source CSIR, 2004
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Current Logistics Realities

• The Extended Supply Chain is disconnected
• Inability to connect and aggregate Supply Chain
  information from shippers and service providers
  creates large information gaps
• Daily operations devolve into fire-fighting time
  is spent manually aggregating and communicating
  status
• Manual processes break down as a result of
  complexity of execution
• Shippers build fat into service requests
  Just-in-case
• Information that is collected outside the four
  walls are critical to operations
• Shippers and service providers do not work from
  the
• same set of information
• Re-active response vs. pro-active planning
• No capacity guarantees from major
• logistics service providers

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• Results of an inefficient logistics system

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Effect of the land freight bottleneck
Enhance supply chain efficiency
Potential cargo/ commodity/ product/ goods
throughput of the SA economy
Reduction in through put due to port
in-efficiency
Reduction in through- put due to road
in-efficiency
Reduction in through put due to rail
in-efficiency
Enhance supply chain efficiency
Growth on some major strategic corridors has
exceeded original MSA predictions by 100.
Corridors cannot deal with capacity demands due
to systemic constraints and under-investments.
CSIR 2004
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Silo operation amongst logistics players leads to
an inefficient logistics system resulting in
e.g. INTERMODAL SECTOR
CUSTOMS
SHIPPER
CONTAINER PARK
CONSIGNEE
TERMINAL
VESSELS
PORT

• Isolated Optimisation
• Reduced Export Ability for Customers affecting
  their growth
• Reduced Foreign Direct Investment
• Reduce Global Competitiveness
• Increased Dependence on Imports
• Drive-up Logistics Costs
• Increased Inventory Levels
• Increase Unit Cost

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• Results of an efficient logistics system

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Comparative Logistics Cost
Logistics cost as of GDP
Available for investment in economy

SA
of US GDP (Source Wilson Delaney, 2000) of
Hungary GDP Spent on Logistics (Source MSA,
1997) of Global GDP Spent on Logistics (Source
MSA, 1997) of Europe GDP Spent on Logistics
(SourceEuropean Logistics Comparative Costs and
Practice, 1998) of UK GDP Spent on Logistics
(SourceEuropean Logistics Comparative Costs and
Practice, 1998)
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Envisaged benefits of an efficient logistics
system
e.g. INTERMODAL SECTOR

• Increased Exports
• Reduced Dependency on Imports
• Increased Foreign Direct Investment
• Drive-down Logistics Costs
• Reduced Inventory Levels
• Increase Global Competitiveness
• Reduce Unit Cost

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• Transnet focus on integrated logistics service

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Transnets Strategic Imperative
Transnet is transforming its transport and
logistics service provision, to reduce costs for
local businesses and increase South African
competitiveness in the global economy through
integrated services
A Catalyst for
The South African economy
To become a vehicle for growth
Our Customers
Our Shareholder
the reason for our existence
an imperative for a global presence
as the custodian of national assets
to earn our rightful place
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Drivers of Integrated Logistics

• Collaboration
• Share real-time data with key customers,
• suppliers and partners
• Align individuals and organizations
• Standardize processes and practices

• Speed
• Increase responsiveness
• Improve adaptability
• Access information in real time

• Connectivity
• Standardize applications and platforms
• Foster many-to-many collaboration
• Enable trade exchange

Fulfilment Excellence

• Execution
• Improve transportation, distribution,
• inventory, and order management
• Expedite financial settlements
• Measure performance results

• Visibility
• Track inventory flow
• Update order status in real time
• Manage incidents

• Optimization
• Implement new tools and processes
• Eliminate inefficiencies
• Leverage cost savings across communities

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Effect of integration on cost of Logistics
Cost
Rand billion
Stack element cost (Rbn)
0.6
18.0
1.4
6.8
10.5
2.7
y
Order processing
6
z
6
Stock losses
Component Stack elements
Admin management
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25
Warehousing
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Inventory carrying cost
112
Transport
x
Vision
Planning
Measure
Assets
Process
System
Collaboration
Integration
System Collaboration integration in supply chain
Based on GDP of R1.1 trillion for 2002, Stats SA
Jan Havenga, USB, 2004
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Transnets view of integrated Logistics services

• A system of integrating logistics players and
  customers through a seamless process supported by
  a common technology platform

Customer
Loaded Truck
Offloads
Rail Terminal
Empty Truck
Goods Loaded on Wagons Departs
Train Offloads at port
Port
Rail
Customs
Truck Depot
Cargo on Vessel
Seamless process
Common Technology Platform
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The emphasis will be on logistics activities that
assist customer to realise value through
integration
AIR
ROAD
RAIL
PORT

• Infrastructure
• Invite 3rd Party Logistics players to
  participate
• Utilize Existing Infrastructure Better
• Demand Planning
• Collaborate with Customers
• Synchronize Supply and Demand with Transnet
  Capability
• One Customer View
• Visibility across multiple modes
• Virtual Single Point of Entry to integrated
  service offering
• Integrating Other Service Providers
• Integrated Dynamic Planning Platform

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The menu of Logistics Activities that Transnet
will offer depends on Customers requirements
Freight Transport
Inventory Management
Materials Management
Materials
Management
Management
Customer Service
Customer
Service
Order Processing
Order
Warehousing
Warehousing
Processing
Clearing Forwarding
Clearing
Forwarding
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Transnets Challenges to achieve Integration

• Obtaining Project Finance
• Forming alliances with Public Private
  Partnerships
• Build Models to be considered for Infrastructure
  Development
• BOO - (Build-Own-Operate), BOT -
  (Build-Own-Transfer) , BOOT - (Build-Own-Operate-T
  ransfer)
• JVs/Strategic Alliances/ Concessioning
• Current inefficiencies resulting in lack of trust
  between Transnet and Customers
• Industry fragmentation in local market unable
  to collaborate
• Global decision-making
• Current fundamental infrastructure and
  superstructure shortcomings as a result of
  decreased investment
• Legislation and synchronization of national
  interests

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Transnets Challenges to achieve Integration
(cont)

• Current state of infrastructure and capacity
  shortfall
• Funding for re-investment and new capacity growth
• Lack of collaboration in logistics
• Integrated dynamic planning platform
• Integration into the global logistics markets
• Current development vs. growth objectives in
  Transnet
• Skills in logistics and supply chain management
• Low margins

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• Benefits to be realised

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Benefits to be realised

• Seamless transport logistics systems that deliver
  goods on time, in peak condition, at an agreed
  value, using the best available technologies
• Ensuring flexibility to meet changing needs
• Building and maintaining effective business
  relationships between all players making-up the
  individual links in the transport logistics chain
  
• Incorporating transport intelligence as well as
  transport infrastructure
• Successfully meshing transport modes across state
  and international borders
• Using the most efficient and effective transport
  means as agreed by the customer and the supplier.

Source Department of Transport MSA strategy
document
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The rapid integration of logistics services
becomes the key driver for the economic
sustainability of all modes of transport and
ultimately a vibrant economy with globally
competitive industries
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• Thank You