The Ctrack Transport and Freight Index (Ctrack TFI) increased somewhat in December to end a volatile year for the logistics sector on a better note. At an index level of 121.1 in December, the Ctrack TFI is 8.4% above year-ago levels and 1.9% above the September level, signalling that the transport sector likely contributed positively to Q4 2023 GDP growth. While the improvement is indeed welcomed, the Ctrack TFI is still 2.1% below its recent high reached in May 2023 and the sector still faces many challenges at the beginning of 2024.
Graph 1: Ctrack Transport and Freight Index – y/y growth rates
In December, five of the six sub-sectors increased compared to a year earlier, while on a monthly basis the subsectors for rail freight, road freight and pipeline transport contracted. The interdependence and intertwined nature of the logistics sector remain relevant as recently witnessed with the implosion of Transnet’s port operations. Given the underperformance of South African ports, notably Durban but others as well, the whole logistics supply chain in South Africa had been severely disrupted, with some sectors such as air freight an unexpected beneficiary.
The Air Freight sub-sector increased by 5.3% on a monthly basis in December, with indications that this sub-sector could have been a beneficiary of the sea freight troubles in the past few months. The number of unscheduled flights that are typically chartered for cargo purposes increased by a notable 11.2% m/m in December, while consolidated airport flight movements increased by 10.3% y/y. Cargo load on planes subsided somewhat in December. Globally, the air freight sector is also performing well, with multiple demand drivers having facilitated an upward trend in air cargo towards the end of 2023. Global air cargo demand registered 22.4 billion air cargo tonne-kilometers (CTKs) in November 2023, an 8.3% y/y increase and the highest annual growth since December 2021. While this performance can partially be attributed to a base effect (referring to the declining CTKs throughout most of 2022), it is also a reflection of the strong, continuous demand growth over the past four months. Despite this notable increase, the industry’s performance remains 2.5% below pre-pandemic levels, reflecting just how significant the impact of the Covid-19 pandemic was on the air freight sector.
Graph 2: Annual growth in sub-components of the Ctrack Transport and Freight Index (%)
After tumbling in October and November, reflecting the inability of ports to handle cargo due to a multiplicity of contributing factors, the sea freight sub-component increased by 5.3% in December, compared to November, though still lagging on September’s pre-crisis level. Many retailers were anxious about stock for Christmas, stuck somewhere in either a container in the port or at sea with Transnet Port Operations (TPT) indicating at the end of November that the backlog created will only be cleared by February/March 2024. However, the Durban Container Terminal Pier 2 has largely reduced its vessel backlog at anchor by the end of December with employees having worked through long weekends in December and through the New Year across all the terminals. The full employee resourcing at the terminal and demonstrated employee commitment were a direct and major contributor to the desired outcome. There are also original equipment manufacturers on-site at each terminal supporting the teams around the clock following recent confinement agreements that have reduced waiting times for critical spares of handling equipment across Transnet Port Terminals. The improved port throughput numbers are indeed encouraging, spurring optimism that Transnet’s recovery plans may start to bear some fruit.
The Road Freight sector, the biggest among the sub-sectors, experienced multiple headwinds in the last few months of 2023, partly due to the operational troubles at ports. The road freight sub-component declined by 1.0% in December, compared to November, but remains 3.9% above year-ago levels. Heavy vehicle traffic on the N3 route (large and extra-large trucks) was flat in December compared to a year earlier, while heavy vehicle traffic on the N4 route continues to increase notably, with annual growth of almost 20% recorded in December. For the whole of 2023, heavy vehicle traffic on the N3 route increased by only 0.6% in 2023, compared to heavy vehicle traffic on the N4 route increasing notably by around 25% compared to 2022. There is clear evidence that the ongoing operational troubles at South African ports and other challenges have resulted in loads being redirected towards the Port of Maputo, clearly to the detriment of the South African economy. This trend is likely to continue in 2024, as South Africa’s logistical problems will unfortunately not change overnight.
Graph 3 depicts the differential performance among different sub-sectors of the Ctrack TFI. The underperformance of rail and sea freight is evident vs the outperformance of road freight, with notable trend discrepancies evident since the Covid-19 pandemic.
Graph 3: Growth in the Ctrack TFI and selected subsectors
A notable increase in the Rail Freight sub-sector (37.5% m/m) recorded in October turned out to be short-lived, with the sub-component sagging back to its mediocre levels in November (-27.5% m/m) and December (-0.8% m/m). However, for 2023 as a whole and after having declined for five consecutive years, rail freight payload is forecast to have increased by a marginal 1.5% in 2023. Though off an extremely low base and clearly continuing to underperform relative to other transport modalities given ongoing challenges plaguing the sector, the improvement should be celebrated. Among others, large-scale theft of copper cables, insufficient maintenance, lack of locomotives, corruption, derailments and vandalism on freight trains are hampering the sector’s performance. Companies in many sectors of the economy have been reporting that inadequate rail capacity and lack of service delivery have hamstrung production, trade and growth in the South African economy. Transnet Freight Rail’s woes have been a major hurdle for the mining industry in particular, costing the sector tens of billions a year in lost exports, which also impact negatively on the fiscus given reduced tax receipts. While government approved the “Freight Logistics Roadmap’ at the end of 2023, with proposals to resolve the immediate operational challenges while developing interventions to fundamentally restructure the logistics sector to support inclusive economic growth, implementation still needs to be fast-tracked before a notable difference would be evident. More of a medium-term expectation for improvement would be realistic here.
The Storage and Handling sub-sector of the Ctrack Transport and Freight Index increased by 5.1% on a monthly basis and remains 11.1% above year ago levels. Total transhipments, both landed and shipped containers, increased notably in October and November, a spill-over effect of the sea freight underperformance. However, with port performance improving during December, this trend reversed in December with both transhipments and other inventory indicators moderating again.
The transport of liquid fuels via Transnet Pipelines (TPL) declined by 2.6% compared to November, and by 4.5% on a quarterly basis, while this sub-component of the Ctrack Transport and Freight Index tracked higher on an annual basis (+19.3%).
Outlook for 2024
“The transport & logistics sector is of utmost importance to the South African economy. The inability to effectively move products to and from markets comes at a cost, which has a negative impact on the whole economy. Not only does it subtract from economic growth, given that products are not timeously available for trading, but the cost of products is typically higher given inefficiencies”, says Hein Jordt, Chief Executive Officer of Ctrack.
On the assumption of mediocre economic growth in 2024 (real GDP growth forecast at 1.3% in 2024), though somewhat better than 2023 (final estimate for 2023 is 0.6%), another year of fairly subdued growth is forecast for the transport sector. Real transport sector growth is forecast at 3.7% in 2024 vs an estimate of 3.4% in 2023, still outperforming the broader economy that is forecast to increase by only 1.3%. Growth in total payload (road and rail freight) is forecast at 5.5% for 2024 vs an estimate of 1.5% in 2023. On the assumption that rail will continue to improve gradually to account for 15.8% of total freight payload (vs 15.5% in 2022 and 2023), implying growth of 7.4% is forecast for rail freight in 2024 vs an estimate of 1.5% in 2023, still off an extremely low base of calculation. The dominant road freight payload is forecast to grow by 5.1% vs 1.5% in 2023, a welcome improvement and likely to account for 84.2% of total freight payload in the country.
An acceleration in structural reform remains critical to lift South Africa’s potential growth rate, as the current growth levels remain woefully inadequate to address South Africa’s socioeconomic challenges, particularly South Africa’s high unemployment rate. To facilitate higher economic growth a well-functioning logistics sector is a pre-requisite and as such deserves urgent attention at the highest level of government
Table 1: Change in Ctrack Transport and Freight Index in October 2023