Shipping costs holding back e-commerce growth in South Africa

E-commerce in South Africa, currently valued at R71 billion, accounts for only 6.15% of retail in the country. It is expected to grow to 10% by the end of 2025.

The main obstacle to the increased growth of the country’s e-commerce market is the logistical challenge of delivering products to people living in townships and regional areas.

Bob Group managing director Andy Higgins told MyBroadband that the costs of delivering to these areas are much higher than standard metros.

“Currently, many courier companies impose premiums or surcharges for deliveries to these areas, which they consider high-risk,” Higgins said.

“For example, delivery costs to townships can be multiple times higher than in standard metro areas, creating a barrier to affordability and accessibility for these consumers.”

Because of its service mandate, this is one area where a functioning state postal service could be very beneficial for South Africa.

Zulzi CEO Donald Valoyi said that while private postal and courier services have filled the gap left by the Post Office, the state utility caters to all South Africans, especially those in lower-income segments.

“One of the biggest problems with private delivery services is that they are very expensive, meaning many people can’t afford to use them,” he said.

“Private delivery services also struggle to reach remote areas, resulting in expensive delivery fees.”

According to Valoyi, this lack of access to affordable delivery services is impeding the growth of e-commerce in South Africa, which requires high volumes to increase penetration.

However, Valoyi admits that the South African Post Office, as we know it, which is on the verge of collapse, won’t do.

Higgins points out that Bob Group is trying to overcome this obstacle by expanding its Bob Box smart parcel network into townships and regional areas.

The Bob Box service uses locally manufactured steel lockers where e-commerce merchants and customers can deposit and collect parcels using a password or PIN-protected security mechanism.

This service is being offered at a flat rate, which Higgins says will significantly reduce costs for consumers and merchants and help to make e-commerce more inclusive and accessible to South Africans.

Online retailers have adopted a similar strategy by offering pick-up points for shoppers to collect their items without paying for delivery.

For instance, Amazon said 3,000 pickup points will be available nationwide during its November Black Friday promotion.

Increased operating costs

While the cost of having a parcel delivered to a township or rural address is already relatively high, crime within the e-commerce space pushes up online shop delivery costs even further.

FarEye CEO Kushal Nahata pointed out that South Africa’s delivery prices are 50% to 100% more expensive than the global average.

Between 20 and 25 delivery vehicles are hijacked daily, forcing security companies to invest in increased security.

Data from Tracker shows that these hijackings tend to increase in the second half of the year, especially around Black Friday and Christmas.

The same data points to delivery vehicles being more prone to hijacking than personal vehicles.

As e-commerce is expected to rapidly increase in penetration and size over the next few years in South Africa, stakeholders must urgently address the issue.

To do so, FarEye brought together the industry’s stakeholders, including Clicks, Massmart, and Woolworths.

At the event, the supply chain industry body, the SA Production and Inventory Control Society, released a report on last-mile delivery in collaboration with FarEye.

The report’s findings include that security costs are couriers’ biggest concern. Poor road conditions are another contributor to increased operating costs.

It also noted that 20% of respondents have their own fleet of delivery vehicles, whereas 60% outsource their last-mile deliveries.

This is part of an effort by companies to constantly find innovative ways of controlling costs and bring about economies of scale.

Nahata points out that market growth through the entry of major players such as Amazon will increase volumes and make it easier to control costs.

He says this will require collaboration from all stakeholders, including regulatory authorities and the government.