Any port in a storm, but please not in South Africa

25 Aug 2022

It’s amazing how much we have learnt in this post-Covid period about transport, and how crucial it is to maintain functioning routes. In the same way that just a few potholes in a road can make a big difference to the reliability of an entire transport route, a few restrictions on the global transport traffic lanes can make a huge difference too.

There are loads of indices of international seaborne transport because routes are so different. But to take just one, the Freightos Baltic Index — a composite of global freight indices — was puttering along for years at around $1,500 (more or less, the cost of a container from China to the US), and started creeping up in late 2020.

Then it just went nuts. It rose to a peak of $11,000 in September last year and stayed there for a few months. Since then, it has come down aggressively and now sits at around $5,000. But that is still almost three times what it has been on average over the past decade.

The increase, among other things, has had the effect of kickstarting inflationary cycles all over the world. And the reason it happened was mainly because of the strict Chinese Covid shutdown policy. Although you might expect that this would only affect cargoes coming into and out of China, that is not actually how it works. Chinese ports are where about 25% of the world’s transshipments take place — a stopping-off point where cargoes are moved from one ship to another.

The size of this market is gargantuan. In 1980, about 102 million tonnes of goods were carried in shipping containers. Last year, about 1.85 billion tonnes of goods were transported in containers.

I’m interested in this background because one of the questions raised by the national “work stoppage that wasn’t” on Wednesday is, what can the government actually do to decrease the cost of living in SA? Most ideas revolve around providing subsidies, either directly in cash, or indirectly through subsidising transport.

That may help, but there are other things that can be done, too. SA has some of the most inefficient ports in the trading world. If the clogging of a small number of ports around the world can have such a big effect on global trade, couldn’t the unclogging of SA ports make a big difference to the cost of living in SA?

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Transnet

You get the sense that Transnet is really trying hard to fix this problem. But you also get the sense that Transnet is not quite managing to fix this problem. Transnet’s public statements are hard to read because the organisation does so many different things, from port management to rail transport to pipelines.

But, at the most superficial level, it’s obvious the organisation is in deep trouble. It did announce a rebound in net profit to about R5-billion for the 2022 year, but the rebound was largely due to a R3-billion reduction in capital investment. Clearly, what happened here is that the organisation was shocked by its R8-billion loss in the 2021 financial year — its first loss in decades — so it quickly pulled the plug on the vast majority of its capital investment.

The problem is this means the start of an Eskom-like decline, where gradually the existing infrastructure is whittled down to the point where the whole network becomes unworkable. The frustration of companies that depend on Transnet, like coal producer Exxaro, is becoming very evident and very vocal. What is less well known is that the carmakers are equally furious; Transnet was able to transport only about half of its target of cars in 2022, and about two-thirds of its coal target.

Fortunately, Transnet management is very aware of this issue and has announced it is now open for joint ventures in some areas — and the response has been impressive. Transnet announced that it would seek investments worth R100-billion from private-sector logistics companies to expand its port and terminal facilities in Durban and Ngqura (Coega) in the Eastern Cape.

This will be very useful: a World Bank study in 2021 rated Durban’s container handling facilities at 364 out of 370 of the world’s competent container handling facilities. There is unfortunately a reason why so many companies have come forward: as more or less a monopoly, Transnet’s margins, even in its current state, are astronomical. Over the past decade or so, Transnet’s margins have run to about 50%. (Measured at an Ebitda, there are, one suspects, Colombian drug cartels which would be comfortable with those kinds of returns. They compare to, say, Grindrod’s margin at the same level of around 20% and Super Group’s 11%. (Ebitda is the company’s income high on the income statement before all the deductions like tax and depreciation).

The point is that solutions to SA’s cost of living problems lie not only in subsidies, but also in efficiencies, and we should be pursuing those as aggressively as we push for things like making Covid grants permanent. DM/BM

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Transnet