Road versus rail debate : logistics opportunity cost of using road transport in a mining company

M.Com. (Business Management)Transport plays a pivotal role within the South African economy as it enables the country to achieve economic growth. The transport industry does not only facilitate the movement of freight and people, it also employs a great number of individuals and forms a major part of South Africa‟s GDP. The 8th Annual State of Logistics Survey for South Africa indicated that transport costs were accountable for 6.8 per cent of the country‟s GDP in 2010. The importance of the transport industry necessitates that the industry is operated efficiently and effectively. Transport mode choices are not only made based on transportation costs but various other factors are affecting how companies choose the mode of transport for their freight movement requirements. Other factors that are considered include transit time, reliability, accessibility, capability and security/safety. Opportunity costs should also be considered when choosing a mode of transport. There are various different types of opportunity costs that exist within the supply chain, these include the opportunity cost associated with poor service levels, the opportunity cost of returning a vehicle without a backhaul, opportunity costs due to delays, the opportunity cost of holding inventory and lost sales opportunity costs. As transportation costs are not the only factor that companies consider when making a modal choice decision, many companies within South Africa have been moving their goods off rail and onto road. This study highlights the importance of determining the impact that an inefficient mode of transport has on a company‟s transportation model and costs. The main focus of this study is to determine the logistics opportunity cost of using road transport within a mining company. A case study approach is followed as the study aims to present a complex problem experienced by one company to be analysed and presented in an easily understandable format. All the data and company information used within this study was supplied by company DKVL. Data was collected through unstructured personal interviews and specific questions were developed for each person interviewed. The data was triangulated and verified through the use of company DKVL‟s financial statements. From the results of this study, the logistics opportunity cost associated with the mode of transport is substantial. This necessitates the need for companies to revise their transport mode choice on a regular basis as it has a major impact not only on their transportation costs, but also on their inventory holding and carbon emissions. Based on the findings of this study, Transnet Freight Rail (TFR) should not only focus on expanding its existing capacity, it should also focus on improving its customer service delivery. By providing poor service delivery, companies will not shift their freight back onto rail and will rather choose to use road transport to receive the benefit of reliability and flexibility, even if it is a more expensive mode of transport. The knock-on effect of companies choosing to use road transport as opposed to rail transport is significant. The quality of South African roads will continue to deteriorate, companies will continue to pay more to maintain and repair their vehicles and the transport industry will continue to increasingly damage the environment through increased carbon emissions. The impact of not having reliable rail transport is increased logistics costs which have a significant impact on the South African economy