Reducing national freight logistics costs risk in a high-oil-price environment

Abstract

Purpose – South Africa's logistics cost measurement was expanded to include externality costs, and scenarios based on the key exogenous risks were developed to inform mitigation strategies. This paper aims to discuss these issues. Design/methodology/approach – The research approach is quantitative, based on a gravity-orientated freight flow model, a road transport cost model, actual transport costs for other modes, a warehousing cost survey, an inventory delay calculation (to inform warehousing cost calculations and inventory financing costs) and an externality cost calculation. Findings – Transport cost pressures are expected to deteriorate due to the increasingly negative outlook for the oil price and the internalisation of externality costs. The nature of these forces compels transport cost challenges to be addressed strategically through collaborative, industry-wide and even nationwide initiatives. Research limitations/implications – Key limitations are inconsistent commodity classification schemes across information sources, and incomplete container content data. The researchers are collaborating with information providers to address these issues and refine model accuracy and forecasting. Practical implications – The exogenous risks strengthen the argument for new approaches to South Africa's logistics cost challenges driven by the high densities of corridor freight flows. Social implications – The inclusion of externality costs highlighted the negative environmental impact of the current modal configuration and provides impetus for change. Originality/value – Major advancements to logistics cost modelling were made by incorporating externality costs and developing scenarios for risk mitigation. Freight flow data granularity (in excess of one million records) allows both aggregation to national-level intelligence to inform policies, large-scale infrastructure investments and industrial positioning, and disaggregation to enable practical application.