Unless government acts fast and effectively, the situation at the country’s ports will not improve and everybody will lose.
The chaos at South African ports will cost the country in taxes, businesses in revenue and consumers who will pay higher prices as government fails to resolve issues that have seen an estimated 71 000 containers stuck on ships outside the Durban port.
The crisis at the Durban port, compounded by integrated logistics company Maersk’s decision to drop Cape Town as a port of call, significantly heightens the challenges for importing and exporting businesses, Bianca Botes, director and treasury partner at Citadel Global, says.
“With an estimated 71 000 containers stuck at sea and the redirection of shipping routes, businesses face increased costs, extended transit time and potential disruptions in supply chains. Some reports indicate that it will take months to clear the backlog at the Durban port.”
Botes says it is also worth noting the broader economic impact could be profound, affecting gross domestic product (GDP) growth and employment, particularly in industries that rely heavily on efficient port operations.
“This crisis once again speaks to Transnet’s operational challenges. I remember that Transnet was one of the points of concern in the Medium-Term Budget Policy Statement because the minister did not announce any measures to address the issues.
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Where are the plans to fix our ports?
“While Treasury noted it as a problem, no plan was outlined, nor any budget provisions alluded to. This situation at the ports may raise alarms about the potential effects on import and export financing, currency markets and overall economic stability,” she says.
Botes warns that vents such as these put added pressure on importers and exporters and cause delays in exporters receiving their projected income.
“This results in failure to meet contractual timelines, loss of competitiveness in the global sphere, additional costs and delays in receiving goods that are already paid for by importers, all adding to financial strain.”
It will be crucial to monitor developments closely and stay informed about government responses, contingency plans and potential economic repercussions and Botes says a swift and effective resolution of the port crisis is essential to mitigate any adverse effects on financial markets and the broader economy.
“Given the evolving situation, businesses should enhance their contingency plans. Diversifying suppliers, transport routes and logistics partners become even more crucial. Companies should proactively explore alternative ports and carriers, maintain strategic inventory levels and establish robust communication channels with stakeholders.”
Botes says the situation necessitates careful consideration of forex strategies, including hedging and risk management.
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Logistics sector in disarray due to Durban’s port problems
Roy Thomas, operations and logistics director at exporter/importer Hume International, also says the ongoing delays at the largest port in the country is plunging the South African logistics system into disarray.
“This may lead to increased prices in consumer goods and in a worst-case scenario, a shortage of certain products come Christmas and the back-to-work, back-to-school period. We heard forecasts that it could take up to three months to clear vessels that are currently anchored at the Port of Durban,” he warns.
“This spells bad news for consumers during the upcoming festive period, especially given heightened demand over the period, as well as the fact that most families are looking to stretch limited budgets even further this year. Unfortunately, consumers should brace themselves for a rocky few months ahead.”
The situation is aggravated by a number of freight carriers that now levy additional charges against importers due to the delays. Thomas says while these fees have not yet been levied against frozen and refrigerated cargo, the added fees affect products in the dry ingredient product category, such as powdered eggs.
“Unfortunately, importers simply do not have the ability to absorb this increase in costs and have no choice but to adjust prices accordingly which in turn has a knock-on effect throughout the supply chain and ultimately, consumers will be left holding the bag.”
Thomas says inbound vessels are diverted to other ports to alleviate the situation, but he believes these ports may also lack the necessary capacity to efficiently deal with the strain of a rapid increase in freight traffic.
“In line with our strategy to allocate some of our freight away from Durban, we engaged with our supplier base to develop a plan that will allow us to continue to ship products to South Africa to keep the supply chain moving. For example, Hume International currently considers diverting cargo from Durban to Port Elizabeth and Cape Town.”
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Diverting to other ports not a silver bullet
However, he says, this is not a silver bullet and the costs for these changes are substantial for cargo that is already en route or waiting to enter the Port of Durban.
Exporters, such as the citrus industry, have the option of sending freight by road to Maputo in Mozambique for further transportation. However, this option is closed to importers, as regulations set out by the department of agriculture, land reform and rural development do not allow for importing of containers into South Africa through Mozambique or Namibia.
“Until the matter at the Port of Durban is resolved, Hume International will continue to be in conversation with our international suppliers and clients regarding the expected delivery times of orders and we are doing our best to assist those who were negatively affected by port delays.”
However, Thomas says, it does seem increasingly likely that many importers’ clients will miss their deadlines to have stock in stores before Christmas.
Durban’s port is not the only port with problems. Transnet stopped delivery of commodities by truck at the Richard’s Bay port. Botes says from engagement with clients in the sector, it is clear that the constraint at the port is putting massive pressure on the commodities sector, as shipping delays have knock-on effects on other areas, such as contractual obligations, cashflows and logistics costs.
About the president’s visit last week to Richard’s Bay port and minister Pravin Gordhan’s visit to the Durban port, Botes says that the official visits must be followed up with a clear plan, implemented by skilled experts in the field, to eliminate the current constraints.
“The problems at the ports are not new. Concrete plans must be implemented urgently to solve the persistent problem with logistics in South Africa, specifically at the ports.”