Expenditure in 2000/01 (R mns)	Nominal % change in spending		Average real annual % change in spending, 1997-2000	Transport as % of provincial spending
		1997-'99	1999-2000		1997/8	2000/1
Northern Province	586	39%	80%	29.4%	2.0%	4.1%
Gauteng	363	61%	-10%	6.3%	1.6%	2.0%
Mpumalanga	216	11%	19%	3.0%	2.7%	3.1%
Western Cape	525	-17%	51%	1.4%	3.9%	4.6%
KwaZulu-Natal	655	-11%	30%	-1.5%	2.9%	3.0%
North West	258	-22%	14%	-10.6%	3.8%	2.8%
Northern Cape	104	-24%	8%	-13.0%	5.4%	4.0%
Eastern Cape	288	-62%	87%	-17.3%	2.5%	1.6%
Free State	165	-23%	-11%	-18.5%	3.5%	2.2%
Provincial spending	3 160	-10%	30%	-1.2%	2.6%	2.9%
National spending	715	73%	-23%	3.8%	0.8%	0.8%
TOTAL	3 875	4%	16%	-0.3%	1.9%	1.9%
Provinces without Northern Province	2 574	-15%	22%	-5.1%	n.a.	n.a.

Source: National Treasury, Intergovernmental Fiscal Review 2001, Table 6.11, page 88

2.8 The cut in spending on roads followed from the dynamics of the budget. According to the National Treasury, in the three years to 2000, provincial budgets as a whole dropped by 1,8 per cent in real terms. Faced with shrinking budgets, the provinces found it easier to cut public works departments. These departments have a relatively small share of the budget committed to personnel, than health, education or welfare. The Medium-Term Expenditure Estimates predict some improvement in the coming three years, but that will depend on maintaining the overall expansion in government spending.

2.9 The problems of underfunding have been compounded by the fact that historically spending on roads has had no medium to long term planning. There has been fragmented planning and spending between the different levels of government. The massive fluctuations in road building and maintenance spending have impacted extremely negatively on the construction industry. Despite the fragmented planning (or perhaps because of it) South Africa has historically spent a surprisingly high proportion of GDP on roads. However expenditure per million vehicle kilometers is significantly less than comparable countries.

2.10 The point about the underfunding of roads is that as pointed out at the beginning of this section, poor roads add to vehicle maintenance costs. The road haulier has three choices :- pass the cost onto the customer; cut corners in vehicle maintenance (and thereby increase the chances of serious accidents); or slash already low profit margins. Most road hauliers probably juggle the three options and pursue a path of combining the three responses. The underfunding of roads therefore has a significant impact on manufacturing input costs.

Railways

2.11 While it is true that for the past twenty years there has been chronic under-investment in our railway infrastructure, the restructuring analysis performed jointly by Spoornet, the three trade unions organising in Spoornet, and government during 2001 demonstrated that the backlog can be successfully addressed over the next twenty years by drawing on the revenues of an integrated rail freight service, and without any outside injection from the fiscus. This in keeping with Spoornet's investment history, which has always relied on internal revenues. The items targeted for renewal over the next twenty years include track, wagons and locomotives.

Ports

2.12 There is a chronic backlog of investment in port superstructure and infrastructure, in particular port container handling equipment. The backlog has been caused in part by under-investment combined with a surge in volumes. Volumes through our ports almost doubled between 1991 and 2001. About R15 billion of capital investment is required over the next ten years to make up the backlog and meet future needs.

3. Efficiencies in transport

3.1 Much has been said in public about the inefficiencies of our transport systems. However implicit in the observations of many commentators is that transport operators and/or their workers are simply not smart enough or hard working enough. We need to unpack some of the reasons behind the so-called inefficiencies.

Volume imbalances

3.2 A central reason for the apparently low productivity of both rail and road freight operations, is the imbalance of traffic around the traffic, resulting in many empty or half-empty journeys for road freight trucks and rail wagons. The imbalance is caused by South Africa's unusual economic geography, with the industrial heart (Gauteng) being inland. This is unusual for a country that has a coastline, and is of course linked to the history of gold-mining in SA. The result for transport is that the volumes of general and bulk goods transported from Gauteng to the coast, either for coastal consumption or for export, far exceeds the volumes carried from the coast inland. This is the case for road and rail transportation. The same volume imbalances are to be found in regional trade (and therefore transport) relations, with far greater volumes leaving the country by road and rail for our neighbouring countries than enter it.

3.3 These volume imbalances create major inefficiencies for the transport sector. The under-utilisation of transport space has a knock-on effect on costs for the producer and consumer.

3.4 It may seem obvious that the way to redress this imbalance and thereby reduce transport input costs would be to encourage the relocation of many producers to the coast. However, given that the majority of our population lives in Gauteng, the advantages of such relocation would need to be balanced against the social and overall economic costs of such movements.

3.5 Transport operators in the meantime will have to think of innovative ways of maximising the utilisation of their transport space. The road freight industry has already started organising itself along the lines of hubs and spokes, with some companies for example, locating their hub in places like Bloemfontein. The "hub and spoke" method of organising transport services improves vehicle utilisation through bringing goods to a centre and then redistributing them. This is however not appropriate for all goods, especially where time in transit is critical. Spoornet general freight operations are also moving in the direction of more centralised collection of some goods. For example, Spoornet currently collects scrap metal from 1,200 collection points and delivers it to six smelters. Spoornet is seeking to reduce the collection points by entering into road/rail arrangements.

Turnaround time

3.6 Road freight transport lends itself to short turn-around times. Delivery from door to door is possible in a very short space of time. In contrast, turnaround time in rail and in ports is far more complex.

3.7 The variables in turnaround time in rail are the numbers of movements to be made, the state of the handling equipment of loading and offloading, the nature of the signalling system (which in part determines the frequency of trains), storage arrangements, the nature of contracts with customers and so on. Turnaround in rail is measured for locomotives and wagons. Wagon-turnaround is usually much longer than loco turnaround. The wagon turnaround time in Spoornet is on average around ten days, meaning that one wagon gets filled three times in one month. In some product areas the turnaround time is much higher. In the maize sector it is as high as 18 days, which Spoornet blames on the particularly inefficient way in which the maize industry places its orders. The orders of the maize industry are apparently influenced to a large extent by the industry's attempts at maximising their profits through the international spot market.

3.8 To give a practical example of turnaround time as it impacts on delivery time, it currently takes just under five days for goods to be transported door to door from Durban to Gauteng by rail (compared to an average eight hours by road). The process is slowed down by, amongst other things, poor handling equipment in Kazerne. The gantry cranes that lift containers there have exceeded their lifespan and cost R1,2bn to replace. For rail transport from Durban to Gauteng to be regarded as efficient, the delivery time would have to be reduced to three days maximum.

3.9 While backlogs in infrastructure spending will take some time for Spoornet to address, the company is nevertheless addressing wagon and loco turnaround-time through a concerted interaction with its customers, as well as some internal re-organisation. However, it should be noted that improved turn-around time will not necessarily be accompanied by cost reductions for individual customers. In fact in some instances individual costs may actually go up.

3.10 Turnaround-time in our ports has also recently been the subject of public comment. Again, the turnaround-time of a ship in port is not only affected by the speed with which the ship is handled. The variables include how full the port is (whether there is any waiting time before berthing), if ship repairs or maintenance is required, the state of the handling equipment, the design of the ship itself and so on. Singapore is often cited as the world's most productive port because it has such short turnaround times and handles up to 45 containers an hour, compared to Durban's twelve to seventeen. However, it should be noted that the two ports are not easily compared. Singapore is a hub port, meaning that most goods that are offloaded there are almost immediately re-loaded for another destination. This makes a huge difference to offloading arrangements. Also, because the port is so busy, and because it is a hub port, the authorities are able to dictate what type of vessel docks in the port. The authorities will simply not permit the docking of a vessel that is not designed for easy on and off loading. The shipping companies have much greater power in ports such as ours than a port such as Singapore. Shipping is dominated world-wide by five major consortiums. There is a tendency to treat ports in the developing world in ways that would be unacceptable in the developed world. For example, the consortiums give little or no notice of a ship's arrival in South Africa, and expect to be accommodated irrespective of space availability. They also frequently take up valuable berthing space while they conduct minor repairs on their vessels, instead of moving them to the ship-repair areas of our docks. These habits are obviously derived in part from the economic power that these companies wield, but there also appears to be a perception issue i.e. that the ports of the developing world do not deserve to be treated as partners, but rather as servants. There is something of the colonial in this attitude.

Labour

3.11 "Excess labour" in our ports and railways has also been publicly cited as a reason for some inefficiencies. The most recent such pronouncement was made by the CEO of SA Port Operations, who is quoted in the Business Day of 26^th April 2002 as stating that Sapo had to slash waste "like excess labour and manpower". We hope that he was misquoted when he referred to workers as waste. What the "excess labour" argument very often misses is that it is not the numbers of workers alone that is the issue, but what training they have, their physical health and age, and the way in which they are organised for work.

3.12 Our ports and railways managers have been slow to make work-organisational and training changes that would bring about the improved utilisation of the workforce. Sapo is now talking of introducing activity-based rostering, and of substantial capacity building amongst employees. However with a 60% illiteracy rate and an aged workforce profile, the question is how fast this can happen. Satawu will not accept that the legacy of apartheid and short-sighted management should be paid for by the redundancy of thousands of port (and railway) workers who are regarded as "untrainable". The transition must be properly managed and negotiated at all levels, and management and government must accept that political and social stability cannot be sold off for short term improvements in labour productivity.

3.13 Improved labour productivity in the railways was a focus of the Spoornet restructuring negotiations and agreement. The model that was accepted by the tripartite team and endorsed by cabinet, looks to reduce the railway workforce by a maximum of 11,000 over the next five years - 8,000 through possible retrenchments and the rest through natural attrition. This is 10,000 fewer job losses than would have been the case had labour not intervened to halt government's original rail privatisation plans.

4. Transport pricing

4.1 The price of transport is determined by some of the efficiency and productivity issues flagged above, but also the input costs into transport itself.

4.2 Road freight transport in South Africa is expensive relative to road freight in most developed economies. This is partly because of high maintenance and low vehicle utilisation as mentioned above, but also because the rigs used in the sector are imported. While there is some truck assembly in this country, most vehicles currently in use are imported - many of them second-hand imports from the United States. A plus factor in South Africa is that despite the fact that fuel costs have risen dramatically over the past few years, fuel remains relatively cheap compared to many developed countries where high taxes are imposed on diesel and petrol.

Rail remains highly competitive in terms of price in South Africa. Not only does it compete favourably with road, but also it compares well to rail pricing in other countries. To give a fairly extreme example of rail's competitiveness compared to road freight, road hauliers charge R240 per ton to transport sunflower seeds, whereas Spoornet charges R90 per ton. Some rail pricing is distorted and lower than it should be, but changes in prices have to take into account the potential knock-on effect on the price of end products as well as the effect on volumes on our roads. This is why the joint study of government, labour and Spoornet rejected the idea that Spoornet should radically reduce its customer base and its network by adjusting pricing to the point where all so-called unprofitable customers were eliminated.

4.4 While on the subject of pricing, a point about port costs needs to be made. Much has been said over the past few years about the high wharfage charges that South Africa has historically had. These charges were a historical legacy peculiar to South Africa, but for many years they appeared to suit most parties including clients, as they were coupled with low handling charges charged by Portnet. The high wharfage charge has now been radically reduced and is now in line with international charges. Port handling charges have now also been brought into line through fairly substantial increases. Satawu understands that these changes were brought about through extensive consultation between the various affected stakeholders.

5. Logistics platforms and the role of "integrators" in smoothing the value chain

5.1 On pages 41 and 42, the DTI Accelerating Growth and Development document talks of integrating manufacturing with other elements of the value chain. It is useful to assess to what extent the transport sector is already taking on this role in South Africa.

5.2 Traditionally, transport of goods within the manufacturing, distribution and consumption chain was seen as an add-on to be performed as cheaply as possible. Where transport was provided in-house it was regarded as a lowly activity handled by middle management, and where it was outsourced, providers were chosen simply on the basis of price.

5.3 However this is changing rapidly. Organising the flow of materials and products is now a sophisticated process that can make or break a company. Managing the supply chain is becoming a competitive tool in its own right. Competition no longer occurs only between individual companies, but between entire supply chains. This supply chain is the physical network that starts with the supplier and ends with the consumer. Any hitches along the way can cost a firm its competitive advantage.

5.4 Supply-chain management focuses on ensuring that supply meets customer demand as closely as possible. There are two flows in the supply chain that supply-chain management focuses on:- inventory flow and the counterbalancing flow of information. The information flow is primarily about demand. Supply chain management focuses on information flow and then matches the inventory flow rate to the information flow rate. By "inventory" we mean the total set of material in the entire supply chain, including raw material, work in progress and finished goods. Inventory only achieves value when it is provided to the customer.

5.5 Third party logistics providers, or supply-chain managers, are starting to negotiate at senior level with their customers as they take on responsibility for the complete supply chain and become integral to the clients business - hence the term "integrator".

5.6 The American multinational FDX and UPS are typical "integrators". The key features of integrators are the service they provide which collapses customs formalities and tariff barriers by basing charges on a simple straight tariff with a one-price, no hidden extras approach. Generally door to door next day service is guaranteed and backed by wholly owned freight aircraft fleets, highly automated distribution hubs and extensive tracking and van delivery networks. The integrators are primarily carriers of cross-border small parcels but are going up the weight scale and starting to encroach on the airfreight forwarders.

5.7 The following few paragraphs give anecdotal evidence of the development of supply chain management and the role of integrators in South Africa.

5.8 UPS operates in South Africa through Unitrans. It manages the logistics of a number of large organisations. Unitrans' computer tracking system is fully integrated with UPS's worldwide system and has the capacity to track any consignment anywhere via the Internet or direct computer download. UPS has a bonded store in Johannesburg and Cape Town and branch offices in Jhb, CT, PE, and Durban.

5.9 Up to 60% of the forestry co-op, NCT Timber's final product price used to be represented by logistics elements. However through a number of innovative changes NCT has reduced its fright charges for export timber by around 20%. One of the innovations has been the optimisation of storage charges through operating on a Just In Time basis. The reduced charged resulted in the winning of a major timber supply contract with Norway.

5.10 In South Africa P&O Nedlloyd Logistics provides a total logistics management service, concentrating on the automotive and wine industries in SA. From March 1999 it has managed all inbound and outbound logistics for its clients - sourcing raw materials and components, arranging for these to be transported, warehousing and the distribution of the end product. The company does not own any infrastructure.

5.11 Safmarine Container Lines, previously the liner division of Safmarine but now owned by the Danish shipping company Maersk, has full management control of sea and land movement of containers on behalf of its customers. Safmarine has since the early 90's been using an electronic system called "Compass" which provides a linkup to customers. This system has the capacity to clear goods at sea.

5.12 SAA Cargo has a sophisticated barcode tracking system called Zebra. The technology interfaces with the airline's internationally acclaimed Safron technology which manages documentation using EDI protocols.

5.13 Clearly South Africa has quietly been developing its logistics technology and organisational expertise. However it is not clear to what extend this expertise is being widely used and expanded. It is also not clear to what extent these developments are being supported by our universities, technology research institutes, and technikons. A collaborative study on the matter would provide a perfect interface between the DTI and NDOT in their work on freight transport.

6. Training and skills shortages

6.1 As mentioned in the section dealing with efficiencies, adjustments in training to meet modern demands have been somewhat neglected in our ports and railways. The Transport Seta is beginning to set standards for the transport industry and hopefully over time there will be a better alignment between training and skills requirements.

6.2 No full audit of skills shortages and training needs has been conducted in the industry, but Satawu can speak on the basis of its experience of some urgent areas of skills shortages that need addressing.

6.3 The most obvious shortage at the moment is that of train drivers. The shortage of train drivers is a major contributing factor to train inefficiencies - both freight and passenger. It is not uncommon at the moment to find that a train simply cannot move because there is no available driver to drive it. There is also a shortage of road freight drivers, which Satawu believes has been brought about in part by the high incidence of HIV/AIDS amongst long distance road freight drivers. The road freight industry is currently drawing large numbers of heavy duty drivers from the bus industry, where drivers are dissatisfied with substantial cuts in wages and working conditions brought about by the competitive tendering system.

6.4 Also in the railways, we are increasingly facing a shortage of railway engineers. This is in fact a world-wide problem. For example, the UK has not produced a single railway engineer in the past fifteen years. Countries such as the UK are now drawing on our railway engineering base and enticing some of our most skilled and experienced engineers to emigrate.

6.5 In aviation, we used to be the only country in Africa that was training engineers to repair and maintain large jet engines. We no longer do so on account of the outsourcing of big-jet engine maintenance to an American company when SAA was under Coleman Andrews. This particular skills base could take many many years to claw back.

7. The issue of low wages (refer pg. 21 & 38 of DTI's Accelerating Growth and Development

7.1 The DTI document makes reference to the need for a departure from the "old way" of cheap labour as a strategy for manufacturing to achieve competitive advantages. The document states categorically that "cheap labour is no longer a sustainable advantage".

The commitment to moving away from cheap labour sounds laudable. However there is a danger implicit in the strategy document that the move could become relevant for only a small band of workers i.e. those with high levels of skill, and that the "country of two nations" problem referred to on page 8 will be perpetuated by the strategy. In Satawu's experience the crudest form of a growing distinction between two types of workers (one relatively high paid and skilled and the other low paid, untrained and unprotected) is to be found where outsourcing occurs.

7.3 The document makes three references to outsourcing. On page 19 outsourcing is referred to twice as a "given" that has impacted on the structuring of production. Then on page 38 a statement is made to the effect that "the outsourcing of non-core business by many medium-sized and large firms has seen the development of catering, publishing………..cleaning and security services. This trend provides significant opportunities for small business development and BEE." The promotion of such an outsourcing strategy is problematic. The types of enterprise suggested, particularly cleaning and security, are sectors with very low profit margins. They in fact rely almost exclusively on cheap labour, very often paid at below the minimum legal wage. (From 1^st June, the legal minimum for contract cleaning workers in the larger towns and cities will be R6.97 per hour - hardly a living wage, especially given the fact that many workers in the sector are employed on a part-time basis and so work a 20 hour week.) When outsourcing occurs to such companies, workers overnight experience cuts in their wages and benefits of over 50%. Should this be encouraged as part of a BEE strategy? Satawu thinks not. Satawu is of the view that it is patronising and ill-conceived to propose that the low tech, low paid, low profit sectors are good for BEE.

8. General comment on SA employers' and government's readiness to consult on industrial strategy

8.1 Part 3 of the DTI document is called "Partnership for Performance". It emphasises "the importance of strategic co-operation and collective action between economic actors" (pg. 52), and points out that a platform for partnership already exists in the form of Nedlac (pg. 53).

8.2 While it is true that Nedlac exists as a platform for partnership, in Satawu's experience there is a long way to go before there is a general mindset of collaborate on industrial strategy amongst employer and government parties. Greater intervention and a lead by DTI and other government departments to promote such collaboration will be required. To give a few examples to illustrate Satawu's point:-
Satawu has never been consulted either by DTI or the Gauteng provincial government on the plans for the Kazerne/City Deep IDZ. This is despite the fact that the union's precursors (T&GWU and Sarhwu) provided input into the initial idea.
Satawu was never consulted on its views viz. the Coega port development and the impact that this may have on national port development strategies.
Satawu was never consulted on the Gautrain concept or how it fits into national rail passenger strategies.
In October 2000 Satawu, together with the two other recognised unions in Spoornet submitted a set of proposals to Spoornet management for a process to deal with efficiency and related issues. To date there has never been a formal engagement by Spoornet management on the document.

8.3 We can give examples of where we have been consulted on policy and development issues, so all is not doom and gloom on the collaboration front. However the point is that there needs to be a shift in order for a consistent collaborative climate to exist. It should be second nature to every government department and every employer to consult labour on key issues that have a bearing on industry strategy and national growth.