Online shopping delivery price pain in South Africa

As South African e-commerce continues to grow, so does the rate of crimes perpetrated in the sector, making it increasingly difficult and expensive for online shops to operate.

This is according to FarEye CEO Kushal Nahata, who told the City Press that the increased need for security drives e-commerce companies’ operating costs up.

Nahata, whose company develops technologies for increased efficiency in last-mile delivery, 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 per day, according to Nahata, 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 need to tend to the matter urgently.

To do so FarEye brought the industry’s stakeholders together to discuss the matter, 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 the biggest concern for couriers at the moment. 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 keep costs under control.

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

Local players feeling the pressure

Despite the entry of e-commerce giants like Amazon, Temu, and Shein helping to expand the e-commerce market in South Africa, local companies are struggling to cope.

As a result, South Africa’s Competition Commissioner Doris Tshepe has said that the government will need to employ all of its tools to create a fairer playing field in the e-commerce sector.

In July 2023, the Commission released its Intermediation Platforms Market Inquiry report, which found Takealot to be the market leader with a dominant share of online transactions — defined as more than 35%.

However, much has changed since the report was released 14 months ago.

South Africa has seen the entry of American e-commerce giant Amazon and the rise of Temu, which, along with fellow Chinese clothing manufacturer Shein, has been taking over online shopping in the country.

The Competition Commission’s chief economist, James Hodge, said that the focus at the time of the inquiry was on market dynamics, but it has now shifted to international players.

This emphasises how rapidly South Africa’s e-commerce sector is growing, which Tshepe said must be regulated by competition law and government policies.

One example is the South African Revenue Service (SARS), which implemented VAT on a 2007 concession that previously allowed packages below R500 to pay a flat 20% import tax.

SARS implemented the change in September to regulate low-value products bought from Temu and Shein specifically.

Despite this, South African firms are clearly feeling the pressure.

Takealot has told SARS that although the increased taxation was a step in the right direction, more needs to be done to bring about fairness in the industry.

Takealot group head of external affairs, Tshepo Marumule, submitted to SARS that all foreign-owned e-commerce businesses must establish local offices and distribution centres.

The Naspers-owned e-commerce giant also wants companies such as Temu and Shein to employ locals, partner with local small SMMEs, and open local bank accounts.

Takealot believes this will allow for all revenue generated by these firms in the country to be subject to South African tax laws.