Compliance in South Africa’s logistics businesses now more important than ever before

Johannesburg, 20 March 2020 – With South Africa’s domestic economy officially in recession, the inclination for many in business to take greater risks for the sake of short-term profitability has notched up considerably, with regulatory compliance often being a victim. “As an industry we operate within key legal parameters, and red tape and paperwork are inevitable,” says Christo Erasmus, head of legal for Bidvest International Logistics (BIL). But, he warns, “The paperwork associated with fixing a non-compliance issue can be far more onerous.”

BIL is one of South Africa’s largest logistics businesses, providing end-to-end supply-chain solutions across a range of industries and offering international import and export services using sea, air and road. South Africa’s road freight transport system is fundamentally different from those of other countries, with large fleets often running into triple-digit figures and requiring complex management.

Processes, especially in the logistics industry, are mostly governed by legislation. South Africa’s Customs and Excise Act, a roadmap to ensure compliance on a day-to-day basis, remains firmly in place, with the South African Revenue Service involved in virtually every aspect. “The extent of compliance in a player’s business will depend on the nature of the transaction, that is, the type of goods involved – hazardous or non-hazardous, for example – the manner in which they’re being transport, and the scope of services offered to the client,” says Erasmus.

By cutting processes and taking shortcuts, people don’t realise that they are actually in contravention of legislation and therefore non-compliant. Erasmus notes, however, that non-compliance in the industry isn’t always purposeful: “People often don’t know what they don’t know, and inadvertently cut corners,” he says, adding that he’s found in his professional experience that people tend to do what they’re told to do by someone higher up in the hierarchy.

Erasmus points as an example to the uncertainty around how the Road Traffic Act will potentially be amended to allow for legal transport of “high cube” containers. These containers are 30 centimetres taller than the standard 12-metre container, and loaded on a normal road-transport trailer result in an overall height of approximately 4.6 metres.

“In its current form, the Act states that it’s illegal for trucks to have a height exceeding 4.3 metres, surface to the top,” says Erasmus, “so on the face of it, carriage by road of high cube containers is unlawful in South Africa without an abnormal-load permit.”

This issue dates back to 2009, when the height restriction was suddenly enforced, and trucks carrying high-cube containers were impounded by traffic authorities, particularly in KwaZulu-Natal within which the major container port of Durban is located. The ban was then lifted, and after extensive consultation between the Road Freight Association and the Department of Transport, a moratorium was put in place in terms of which road-transport vehicles were exempted from the 4.3-metre height restriction for seven years. The moratorium expired on 1 January 2019.

“My concern is that further delays in amending the legislation will have an impact on industries across South Africa,” says Erasmus, “as every single truck leaving a port or harbour on South African roads with a high-cube container will immediately expose players to penalties and fines. Apart from reputational damage that can be suffered, these fines and penalties will exposure logistics companies to financial losses.”

Despite these challenges, South Africa’s local logistics industry remains resilient. The World Bank’s Logistics Performance Index (LPI), which measures performance in logistics supply chains across countries, indicates that despite volatility and global uncertainty, South Africa’s logistics sector is still performing reasonably well. The country ranked 33rd out of 160 countries in the most recent (2018) study. For an 11-year period, there hasn’t been much change in South Africa’s LPI score, indicating that the industry remains fairly stable, and it has a top-ten ranking for top-performing upper-middle-income economies.

Nonetheless, says Erasmus, “The industry remains heavily under pressure. Given a toughening economy, and now the impact of Covid-19 on global supply chains, it’s a matter of time before this will impact us, so the pressure to cut corners is ever increasing.”

Along with this, the sector’s regulatory framework is having to continually readapt to meet the needs of modernisation, harmonisation, transparency, health, safety and security. Megatrends identified by the World Economic Forum in 2017 that would drive insurmountable change for logistics, and by default, compliance, included logistics skills shortages, restructuring of global supply chains, supply risk and recovery, digital transformation, issues of sustainability, and the rise of e-commerce.

By streamlining processes and eliminating unnecessary red tape, Erasmus believes that players can minimise the risk of human errors in supply-chain compliance. The more compliant players are, the fewer questions are asked, and this in turn increases efficiency, as every question regarding non-compliance adds another unnecessary hurdle to the supply-chain process.

A combination of technology and processes rigour will also uphold a good level of compliance in a player’s business. Ensuring that these processes are continually followed is critical, too, along with an effective repository of compliance best practices and the continual updating of compliance processes.

“As clients come to rely on us because we’re driven by a compliance-focused culture in our business, so, in the long run, may other players start focusing less on price and more on value,” says Erasmus.