Economic Freedom and Logistics
Economic freedom for individuals across all levels of society requires a growing and vibrant economy, built on four sustainable legs: Job Creation, Purchasing Power, Competitiveness and New Business Innovation. RailRunner South Africa contributes to improvement in all four legs through its bimodal logistics revolution.
Logistics is a key element of all economies. Without logistics, manufacturers and producers cannot get their goods to domestic or international markets. Without logistics, importers of raw materials, agricultural products and finished goods cannot get their imports to customers. Consequently, in all trade the cost of logistics is a key component of cost and hence drives price. In South Africa this is a critical issue as noted by Havenga et al. in a 2018 report:
The competitiveness of the South African economy is hampered by high freight logistics costs, amounting to R393 billion or 11.1% of gross domestic product (GDP) in 2013, while freight logistics costs as a percentage of transportable GDP breached 50% since 2012 (refer Havenga 2015, for methodology, and Stellenbosch University 2015, for data update). The ratio of South Africa’s freight logistics costs relative to the country’s GDP is higher than the same ratio in developed countries; for example, the ratios of North America and Europe are 8.2% and 9.2%, respectively… South Africa’s high freight logistics costs can be linked inter alia to the disproportionate transport demand relative to the size of the economy owing to inland mining activity and related industrial development far from coastal ports (Havenga & Pienaar 2012a). An added challenge, however, is the modal imbalance between road and rail owing to rail’s investment backlog of the past two decades and limited road–rail collaboration (Havenga 2015). (Emphasis added)
Freight costs of 50% of transportable GDP means that on the average, there is a 50% tax on all goods produced in or imported to South Africa (this would exclude the services component of GDP).
Managing and improving the four legs of economic freedom demands lowering logistics costs as much as lowering production costs. The high percentage of road freight versus rail cargo movement is a principle driver of South Africa’s high logistics costs. As pointed out by Havenga et al., intermodal rail transport can alleviate this cost, much of which is due to diesel consumption by tens of thousands of truck trips.
South Africa’s inter-metropolitan general freight flows (i.e. corridor flows) constitute 48% of freight tonne-km, of which rail transport only approximately 23% (Havenga et al. 2016). Total rail tonne-km market share on the two most dense corridors, namely, Gauteng-Durban (550 km point to point) and Gauteng-Cape Town (1400 km point to point), is only 12.8% and 4.4%, respectively. It is one of the European Commission’s 10 goals for a competitive and resource-efficient transport system to shift 30% of road freight travelling further than 300 km to rail or waterways (Kallas 2011), whereas Sanchez-Triana et al. (2013) describe distances beyond 500 km as competitive for intermodal freight solutions. Owing to this aberrant application of modal strengths, almost 40% of South Africa’s freight transport costs are attributable to diesel costs, a volatile exogenous cost driver (Havenga & Simpson 2013). Compounding these challenges is that South Africa’s freight task is expected to treble over the next 30 years, with further concentration on the long-distance corridors.
RailRunner’s bimodal logistics revolution addresses these strategic logistics concerns for both container and trailer transport with its Terminal Anywhere® bimodal technology. Let’s examine how RailRunner South Africa creates jobs, increases consumer purchasing power, enhances competitiveness and builds a national platform for innovation.
Job Creation
RRSA plans to deploy 34 bimodal freight trains across various routes over a five-year period. Intermodal capacity is typically measured in TEU’s (for “Twenty-foot Equivalent Units”, a legacy measurement form container ship transport). A typical RailRunner train on South Africa’s Cape Gauge rail system will transport 84 TEU. If each train is a round trip daily service, in a 300-workday year, that amounts to 50,400 TEU transported per year per train, involving 201,600 lifts (trailers on or off a train) per year per train. By the end of five years, RailRunner trains will be transporting 1,713,600 TEU per year, with 6,854,400 lifts.
In the US, the State of Virginia published a study(1) that measured job creation by new intermodal services. Part of the study analyzed the impact of intermodal services in several different regions of the US as well as Virginia. The report indicated the planned impact on the Roanoke, VA area in the following Figure 1 Estimated Potential Long-Term Job Creation in the Roanoke Region:
Figure 1 Estimated Potential Long-Term Job Creation in the Roanoke Region
Virginia’s analysis, based on studies of multiple intermodal services already in place, showed that a RailRunner service should create between 27.4 and 108.1 jobs per 1,000 lifts. So, a typical RailRunner train should produce between 5,000 and 22,000 jobs. Over RailRunner South Africa’s five-year train plan, the total job creation should be in the realm of 187,000 to 742,000 jobs. These are direct jobs associated with the intermodal activity. By lowering logistics costs and spurring innovation, RailRunner South Africa will bring additional broad-based economic sector jobs that can be expected to be in the hundreds of thousands to millions.
Purchasing Power
True economic freedom in all economic strata means increased purchasing power for workers (including day workers, wage workers and middle class) not just the upper rungs of the economic ladder. South Africa’s currency has long been subject to rate fluctuations versus more stable currencies. In some minds a reduction of currency value means more exports, and perhaps economic stimulus. But this is a false flag. Related to the Marshall-Lerner Condition real economic improvement is only achieved by long-term trade balance improvement. In other words, currency devaluation can increase exports, but in a somewhat steady condition that will also cause imports to be more expensive. The effect on the average worker is not beneficial. Real improvement comes from reducing the prices of both domestically produced products and imported products. While local producers can lower domestic prices through increases in productivity, that does not lower import prices. However, lowering South Africa’s internal logistics costs can have a direct impact on worker’s purchasing power for both domestic and imported goods.
RailRunner South Africa is targeting to lower door-to-door transport cost by 20% or more through its bimodal logistics revolution. Recalling Havenga’s comment that South Africa’s logistics cost is 50% of the “transportable GDP”, RailRunner’s impact on worker purchasing power will be measurable and an improvement at any currency exchange rate.
Competitiveness
South African producers and manufacturers can offer more price competitive products for local consumption and for export in three ways: By reducing margins, by increasing productivity and by lowering logistics costs. Suppliers are always reluctant to lower margins, and often cannot and expect to stay in business. Productivity improvements are difficult to achieve because labor is usually seeking increases in income and benefits, and other productivity improvement might involve large capital investment. Lowering logistics costs creates a more competitive supplier, and indeed, a more competitive South Africa, through a modal change that is itself a revenue producer, a job creator and a contributor to the services GDP. The capital created by using RailRunner bimodal products can fund growth, increase competitiveness and stabilize the Rand value through increased exports.
New Business Innovation: Entrepreneurial Expansion
Whether in agriculture, manufacturing or services, a key component of economic growth is an economy’s ability to support the establishment and growth of entirely new businesses. Logistics is the necessary infrastructure that connects a new business to natural and/or labor resources and a new business to markets. Whether it be early automotive manufacturing in Europe or North America, the semiconductor and computer industry in California’s Silicon Valley, the explosion of soybean production in south and south-central Brazil ( Sao Paulo, Parana Santa Catarina and Rio Grande do Sul) for Asian consumption, or the export of coal and mineral products from resource-rich Africa, none of these developments were possible without logistics. The logistics tie to modern-age entrepreneurial development is well reported in economic research(2)
“The construction of entrepreneurial network system should be based on a clear and interdependent correlation in the activities which are undertaken to achieve a common goal. In order to gain an effective cooperation it is important to transfer the supply chain practices into management of logistics processes in network systems…For even more efficient functioning of e.g. a cluster, a logistics center should be added; this will provide the backbone of the activities carried out by the several/dozens of entities belonging to the cluster also with the support of other cooperating entities. It will also provide a central point of departure of the goods, which will support the whole process of delivering product to the customer (e.g. a foreign broker, wholesale, shopping centers or supermarkets).”
RailRunner’s Terminal Anywhere technology lowers the capital barrier for creating logistics centers, and with its drive-on/drive-off rail loading system, provides safe, efficient and easy rail network access for the creation of new industrial and agricultural production centers. This efficient supply chain access encourages the growth of economic activity where the population and natural resources are located creating jobs, commercial value, tax revenues for the state and domestic and international commerce.
Summary
Economic freedom for all strata of South African life requires more than slogans or fleeting incentive programs. Economic freedom requires a sustainable infrastructure that creates jobs, improves the purchasing power of all workers, makes producers, manufacturers and businesses more competitive and provides a platform for launching new businesses in geographic areas where the labor supply and local resources can create value for delivery through an efficient supply chain.
RailRunner South Africa drives economic freedom with its RailRunner bimodal logistics revolution.
Footnotes
1. Commonwealth of Virginia, Department of Rail and Public Transportation, “Economic assessment of A Roanoke Region Intermodal Facility”, January 7, 2008, page 22.
2. Wiśniewska-Sałek, Anna. (2014). LOGISTICS The Importance of Logistics in Creating Entrepreneurial Networks, 33. Logistics and Transport.