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No economic sense in developing a Grootfontein logistics hub

No economic sense in developing a Grootfontein logistics hub

By John Saunderson of Amir Consulting Services.

The idea of logistics hubs or dry ports has been on the table for many years. The key question is, what makes an area an ideal location to function effectively and efficiently as a logistics hub?

A logistics hub is a designated inland intermodal cargo terminal directly connected by road or rail to a seaport. It operates as a transshipment link for sea cargo to inland destinations. These ports may also host facilities for storage, deconsolidation and consolidation, collection and distribution, maintenance workshops for hauliers and customs clearance.

Logistics hubs provide not only traditional activities such as storage but also value-added logistics services such as labelling, assembly, semi-manufacturing, and customizing. These centres combine logistics and industrial activities effectively in major port areas to create country-specific and/or customer-specific variations or generic products.

Numerous studies and projects around the world have confirmed that the maximum distance of a logistics hub away from the seaport is between 200 km and 300 km for a road/rail model. This is largely due to pervasive efficiency issues in the local railway system.

The question for Namibia thus becomes whether Grootfontein lies within this economic distance range sweet spot?

To arrive at a feasible answer requires a methodological approach to transport systems analysis and modelling. Such an approach would allow for the practicality (technical) and financial net benefits to be determined more precisely. Cutting the road transportation distance from 2500 km to 1400 km surely does sound promising (to road transport operators at least). Considering that trains move at a much lower average speed than road vehicles, and also taking into account the number of stops, it implies that there is a certain optimal distance from a logistics hub to the seaport.

In the case of Grootfontein, an additional minimum of one day is for certain in transporting goods from Walvis Bay to Zambia or the DRC. At face value, road transport operators are sensitive to the potential benefits they can derive from the locality of a logistics hub and if these do not materialise in their operations, then the hub will be unattractive.

The savings realized by truck owners derives from the reduced annual kilometers travelled and thus the opportunity to extend fleet replacement programmes further into the future. However these operators would quickly realise that this location, Grootfontein, is not practical.

Analysis of data from the National Statistics Agency and the Roads Authority suggests that, from a customer perspective, the opportunity cost per ton per hour in land transport is approximately N$65 from Walvis Bay to Lusaka, Zambia. Given this figure, an interest rate of only 5% and an additional time in transit of only 2 hours result in an additional N$73 per ton (over the 2100 km to Lusaka) at a train speed of 60 km/h up to Grootfontein which is ambitious when modelling railway operations in Namibia. In total, this transport mix has the resultant impact equal to N$1460 for a typical average truckload of 20 tons. Other existing and new operators from Zambia and DRC will jump to the opportunity to deliver cargo faster and more efficiently between the Walvis Bay harbour and the destination countries.

Essentially and eventually, a Grootfontein logistics hub will prove not to be attractive for practical and financial reasons.

As I have advocated in 2017, a more attractive location is in the area of Usakos. At any greater distances beyond 300 km from a sea port, a logistics hub loses all competitiveness. I hate to be the bearer of bad news but we need to check reality before committing resources to promises we know are not sustainable.


About The Author

John Saunderson

John A. Saunderson lives in Otjiwarongo and is the Principal Transport Economist at Amir Consulting Services, with expertise in transport systems including operations, policy, regulation, infrastructure, strategy and management. He has worked on many projects for the Namibian Government, parastatals, engineering consultants, private individuals and business consulting firms on transport infrastructure plans, policy, regulation, economic analysis and business plans. He is a transport economist by profession having worked for the Roads Authority, the City of Windhoek and the Ministry of Works and Transport. Mr Saunderson obtained his B.Com (Hons) degree in Transport Economics from the University of Stellenbosch and his undergraduate degree in Transport from Rand Afrikaans University. He has been providing consulting services since 2007.