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Risks Facing South Africa’s Transportation And Logistics Sector

06 June 2024 – The transportation and logistics industry has been battling the operational and commercial fallout of multiple global crises, including the COVID-19 pandemic and geopolitical conflicts.

Because of the industry’s significance for the global economy, risks and challenges facing the industry will continue to receive scrutiny. Russell Davis, property manager at Aon broking centre at Aon South Africa unpacks the top five risks for South Africa’s Transport and Logistics Industry:

  • Business interruption

These interruptions are intrinsically linked to many other top 10 risks and is now more systemic, partially because of global business operations’ companies shifting from event-based to impact-based risk assessment.

Business interruption can affect multiple industries, regions, trade paths and companies simultaneously as they phase in and out of periods of recovery.

  • Economic slowdown

While higher commodity prices are good for exporting countries such as South Africa, Transnet’s underperformance has impacted commodity exports and other sectors such as manufacturing and retail, weakening Africa’s most advanced economy.

The country is also faced with rapid inflation in the form of rising food and energy prices in addition to natural disasters such as record-breaking rainfall, drought and increased fire risk. Some of the side effects of an economic slowdown include a slowing or disruption of revenue streams, supply chain disruptions and financing issues, which could potentially lead to labour retrenchments in a bid to manage costs, further hampering the efficiency of the transportation and logistics sector.

The industry also finds itself in a globalised environment where international competitors can step in and reduce the size of the pie even further.

  • Exchange rate fluctuations

The weakened Rand lends itself more towards an export-driven market than an import market, which effectively turns an industry that is governed by imports and exports as a business principle into a volatile rollercoaster ride.

  • Supply chain or distribution failure

The definition of supply chain risk is broadening and becoming more complex, extending well beyond keeping shipping vessels moving or suppliers’ manufacturing facilities intact. Today it involves the availability of talent, the ongoing solvency of critical suppliers, the ESG performance of a company’s supply chain, and the increased IP and cyber exposure triggered by shared supplier systems and processes.

By its nature, the sector participates in complex, extended supply chains, which means there are many possible points of failure. Consider the rise in cargo theft, which is at a 10-year high. Social media and advanced technologies have made it easier for bad actors to spot and seize opportunities, including impersonating drivers, hijacking, and conducting fraudulent cargo pickups.

  • Commodity price risk

In the context of the transport and logistics industry, markets and supply chains have increasingly become global in nature, but disruptions in specific regions can have a pronounced effect on prices and supply.

The industry will need to continue to develop new strategies to address the fast-evolving risks that are on its doorstep as well as any new risks that are approaching. Resilience and significant value are at stake. Having to pivot and constantly make high-impact decisions around protecting the company’s people and assets, its balance sheet, revenue, costs and business strategy is no small feat. Source: Crown.co.za