South Africa’s logistics sector is currently beset by cut-price competition as the economy languishes in low growth. With margins under pressure and relatively few barriers to entry in the sector, the country’s listed operators have found it difficult to carve out a defendable business model, reflected in some depressed valuations. Although their fortunes could change quickly against the backdrop of economic improvement, this remains a corner of the JSE that will scare many retail investors.
A drive between Johannesburg and Durban very quickly lays bare much of what plagues logistics in SA: underfunded, uncoordinated, untrusted and largely underused rail infrastructure has pushed the movement of goods to our roads, clogging up major arteries with a seemingly endless traffic jam of brand names. The result is road infrastructure degradation, higher prices for logistics customers – whether importing, exporting or delivering for retail – and something of a free-for-all when it comes to choices of service providers.
Barriers to entry
At the basic end of the supply chain, owning or renting a truck and winning a contract to move goods presents almost no barriers to entry, except for mobilising enough capital to pitch for business. This has created an oversupply of capacity in the industry, especially during economic downturns. Consequently, the country’s listed players have been pushed further into niches and further up the value chain in attempts to preserve market share and eke out a profit.
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