Logistics costs stifle automotive sector growth

If South Africa wants to see its automotive sector flourish it is imperative that logistics costs be reduced drastically. According to Dineshan Moodley, executive – industry development for the Automotive Industry Development Centre (AIDC), global competitiveness of the sector will only become a reality if the cost of logistics is addressed. “The largest cost for the automotive sector by far is its logistics,” he said at a freight conference in Pretoria. “It is also the biggest barrier to growth.” He said the decision by multinational automotive companies to pool resources and establish supply parks has to a certain extent addressed the high cost of logistics. “The supplier parks allow for some cost-competiveness that can be obtained through the synergies of working together. Currently we are producing less than 500 000 vehicles in the country per annum. The target is to increase this to about 1.2 million while our localisation target is about 70%. At present it is about 35%.” Moodley said by sourcing more components locally the cost of logistics could also be reduced. “It is not just about being competitive locally but being able to participate on the world stage. In 2010 we produced 472 000 vehicles here compared to the 77.9 million vehicles manufactured globally. So in fact the South Africa share of production is a drop in the ocean if one looks at the figures. We only manufacture 0.61% of the world’s vehicles.” According to Moodley, in a national context, the importance of the automotive sector is huge. Total South African exports are around R585 billion per annum, with the automotive export about R69.5 billion of that. “Government has committed to the sector with President Zuma pledging a billion rand to the ports to help the auto sector become more competitive.” Moodley said the next step was reducing the costs of logistics in the sector – and the first priority should be localisation and beneficiation. “Logistics must be an advantage not a drawback to a sector. Other ways to decrease the cost of logistics is to use the new deep sea port at Ngqura, to further develop the Port of Durban and to develop an electronic portal that is there to bring about one integrated portal for the entire industry.”