Logistics News - Week 35

Good morning?

Everyone is holding their breath as we are expecting a huge fuel hike next month, we see that shipping rates are starting to stabilise. Iain Mcintosh from ONE Line has released his second-quarter global and South African market review (attached), It’s a brilliant insightful read, I urge you to read it.

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Have a wonderful week

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NEWS

Transnet CEO fears major job losses in trucking industry if rail improves

South Africa’s surge in trucking that’s emerged largely due to higher coal prices and train bottlenecks may lead to catastrophic job losses in the road transport sector when factors ease, according to the head of the state-owned port and rail company. The logistic problems faced by Transnet — from locomotive shortages to vandalism — have forced miners to choose the more expensive option of trucking commodities to the coast to take advantage of higher prices.?That raises concern over what will happen to truck owners in the wake of lower commodity prices and as rail operations improve, Transnet Chief Executive Officer Portia Derby said at a Bloomberg event in Johannesburg. Operators in the sector need to start earnest talks and establish a model that will include truckers long-term.?"We have created the demand — our failure on one hand and also the demand of the mining industry has created the trucking industry," she said. "For the vast majority of the truckers, they are moms and pops, who when they left work took their pensions and bought a truck because there was an opportunity." Trucks carrying coal and other commodities sit in queues that stretch for miles to the Mozambican border and crowd ports along the coast. The onslaught of traffic in rural areas and towns has created safety issues for the communities as well as drivers.??But prices for export coal have dropped more than 50% in the first half of the year, compared to the same period in 2022, Exxaro Resources Ltd. reported Thursday in a results statement. We certainly need to get more more freight off the roads and back on the rail straight to port and in a very streamlined manner," Chiedza Madzima, head of operational risk research for BMI-Fitch Solutions, said at the event. Richards Bay Coal Terminal shipped 50 million tons of the fuel last year, the lowest amount in three decades, due to the rail issues. "I hope our performance is not worse than last year," Derby said. "So we are working really hard to make sure that we at least meet the 60 million tons that we committed to."

Source: News24

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Logistics fixes critical for better agricultural outlook up to 2023

Research organisation the Bureau for Food and Agricultural Policy (BFAP) finds in its latest outlook for the agriculture sector over 2023 to 2032 that the sector is experiencing mounting pressure and challenges that are hampering the extent to which it can continue contributing to gross domestic product (GDP). Speaking during the launch of the latest outlook, the ‘BFAP Baseline 2023’, commodity senior analyst and director?Mmatlou?Kalaba?said recent global events, outbreaks of diseases, severe droughts and?financial?crises last seen in the 1930s were creating uncertainty about what could happen in the next decade.?“We are not looking at the future for agriculture the same way we did just two years ago,” Kalaba added. BFAP MD?Ferdi Meyer?said the South African agriculture sector currently functioned within the context of a growing nation that needed to be fed, coupled with having the most unequal society in the world and extreme weather events becoming more frequent. The BFAP states in the outlook that although agriculture has contributed strongly to GDP over many years, this contribution will largely stagnate in the years up to 2032. Looking at the global context, University of Missouri-Columbia Food and Agricultural Policy Research Institute international programmes director?Julian?Binfield?said fertiliser prices had come down globally, but other input costs remained high. High input costs, coupled with disease and weather issues, have constrained production responses for meat globally, for example. This has led to record or close to record meat prices in the US and the European Union. Another global trend is extreme weather events happening more often, as well as more use of?export?controls, supply chain issues and labour availability issues. Binfield explained further that tariff barriers had fallen in recent decades as multilateral, then bilateral, agreements reduced tariffs. However, non-tariff barriers have become more important, with pressure for new?regulations increasing?in domestic markets. Covid-19 has amplified calls for self-sufficiency and domestic?security?and trade disputes are likely to continue. There are more volatile markets as a result, and there will be a trend towards more deals, rather than free trade agreements, as well as more ad-hoc trade restrictions. BFAP markets and foresight director?Tracy Davids?listed the realities influencing the latest Baseline outlook as being ongoing economic pressure with ample downside risk.

Source: Engineering News

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Global supply chains within Africa’s grasp

Businesses globally are diversifying their suppliers to reduce risk, and Africa is ideally placed with its African Continental Free Trade Area (AfCFTA) to tap into this trend and participate more in global supply chains. This was the conclusion of the United Nations?Conference on Trade and Development’s (Unctad)?Economic Development in Africa Report 2023?released in Nairobi last week by Unctad secretary-general, Rebeca Grynspan. She highlighted factors driving the "huge" opportunity for the continent to exploit this trend towards alternative sourcing.?“Africa has an advantage with the rise of the renewable energy market, as it is a vital source of raw materials for technology-intensive industries - for instance lithium, essential to the production of electric car batteries. The continent has the possibility to become a destination for manufacturing and should seek to export more complex finished goods rather than just commodities,” Grynspan said. As for demographics, Africa not only has a dynamic, young workforce but also a "burgeoning" middle class, offering local consumer markets for hi-tech products. The continent’s economies should seize the opportunity to better integrate into technology-intensive global supply chains and boost prosperity, but this depends on their ability to harness key market and investment trends. She said diversifying trade “builds resilience and enhances innovation”, adding that diversification was key for private sector development and employment opportunities for the continent’s growing population The report analyses "untapped potential" for African countries to strengthen their position in the automobile, solar energy and pharmaceutical industries.

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Encouragingly, Grynspan noted that "hubs” in artificial intelligence, 3D printing, blockchain, fintech [financial technology] and e-commerce were thriving in countries such as Kenya, fostering innovation and strengthening Africa's chance to capture technology-intensive global supply chains.

Director of Unctad’s division on Africa, Least Developed Countries and Special Programmes, Paul Akiwumi, said it was also important to ease regulatory barriers to drive more large-scale private investment and establish regional industrial development plans.

He cited the example of a?regional agreement between the Democratic Republic of the Congo and Zambia to create an industrial zone for the production of electric car batteries. He also highlighted the importance of product registration and intellectual property security to attract investors.

Source: FTW

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Food inflation slowdown reflected in Shisa Nyama Index

South African food prices have increased at the slowest pace in at least nine months, according to Bloomberg’s July Shisa Nyama Index, which measures the cost of a basket of goods for a traditional South African backyard barbecue in townships and rural areas. The price of the contents of the basket rose 10% from a year earlier. South African annual food inflation cooled to 11.1% in June from 12% a month earlier, while overall price growth eased to 5.4% from 6.3%, data from the government statistics agency show. That led the central bank to pause its longest phase of monetary policy tightening since 2006 on July 20, when it left its benchmark borrowing rate at 8.25%.

Source: FTW

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Key Notes

????????????????????? ? An average of ~7 929 containers was handled per day, with ~8 773 containers projected for next week.

????????????????????? ? TNPA stats for July: containers are down by ↓1% (m/m) but up by ↑1% (y/y) and down YTD by ↓3,7% (y/y). Total bulk cargoes are down versus June (↓6%) and down by ↓15% (y/y). Vehicles: ↓31% (m/m).

????????????????????? ? Rail cargo handled out of Durban amounted to 2 226 containers, ↓4% compared to last week.

????????????????????? ? Cross-border queue times were ↑1,8 hours (w/w), with transit times ↑2,8 hours (w/w); SA borders increased by nearly three hours, averaging ~12,7 hours (↑32%); Other SADC borders averaged ~10,3 hours (↑37%).

????????????????????? ? Global freight rates increased again this week and are up by ↑2,3% (or $42) to $1 832 per 40ft.

????????????????????? ? Global air cargo volumes remain at ↓4%, down from last year, as is capacity at ↑9% and rates at ↓37%.

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Summary

In the country's maritime economy, commercial ports handled an average of 7 929 containers per day – significantly less than predicted and a poor return, primarily explained by the plethora of ongoing struggles this week. This week, port operations were characterized by adverse weather conditions, continuous equipment breakdowns and shortages, severe congestion, load-shedding, and union engagements. Equipment breakdowns and shortages ensured that productivity levels at the Port of Cape Town were recorded at an average of ten container moves per hour this week. Adverse weather conditions in Durban led to no less than ten vessel movements deviating from their respective schedules on Wednesday. Despite Durban TNPA's goal to have six available tugs at the port by August this year, only four tugs remained in operation for the most significant part of the week, while the port helicopter has still not returned to service. Crane QC1 remains out of commission at NCT with a preliminary estimated return time of 31 August 2023. Another cable theft incident occurred on the rail line near Danskraal earlier this week, which delayed operations for approximately four hours, as Transnet makes another plea to authorities to the government to clamp down on cable theft6.

In the international maritime industry, container volumes have declined after a quiet peak season. Growth in volumes, which had been rising through Q2 after a July peak, has reversed on three of four major trade routes (FE-ECNA, FE-N. EUR, FE-Med). FE-WCNA route still maintains volumes, but with negative growth rates this year, relying on capacity cuts for recent rate increases. Blank sailings have become routine in shipping, constituting 10,8% of 25 Central China-Europe loops. Port congestion remains low, affecting 5,8% of the global fleet. Freight rates rose for six consecutive weeks, though peak season volumes are waning, and rates might stabilize below the $2 000 mark. Major carriers' Q2 earnings show varied performance but are generally significantly down versus the Q1. Other developments included (1) FMC probes alleging that MSC overcharged customers for D&D, (2) HMM on top as the most environmentally-friendly carrier, and (3) stranded MSC box ship left the Port of Odesa after 18 months.

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International air cargo to and from South Africa increased in the last week (↑6%) and is now slightly above last year's level for the first time in a while. Domestic cargo is substantially down (↓24%) versus last week and remains pointedly down on pre-pandemic levels (~45%) – especially at OR Tambo. Internationally, average global air cargo rates have stabilised around the $2,27 per kg mark in the last five weeks – way down on last year but still ↑33% above their comparable pre-pandemic levels. On the demand side, the decreasing trend in global tonnages continued into the first week of August and is down by ↓1% (2w/2w) and around ↓4% lower than in August 2022. In other air cargo news, thunderstorms halted operations at Frankfurt Airport on Wednesday.

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In regional cross-border road freight trade, average queue time increased by nearly two hours, while transit times were nearly three hours more compared to last week. The median border crossing times at South African controlled borders increased by three hours, averaging ~12,7 hours (↑32%, w/w) for the week. In contrast, the greater SADC region (excluding South African controlled) increased roughly the same magnitude – around two-and-a-half hours – and averaged ~10,3 hours (↑37%, w/w). On average, two SADC land borders took more than a day to cross, including Beitbridge, Kasumbalesa (with queues still taking around eight days to reach the border), Katima/Mulilo (the worst affected, with crossings taking nearly two days to reach the border), and Santa Clara. Further notable developments included (1) truck protests and torchings, (2) dire conditions for drivers at Kasumbalesa because of queues, and (3) constraints at Lebombo continuing.

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In summary, according to an IMF address this week, the industry continues to battle against the failing logistics network, which, along with the public electricity utility, is prohibiting the economy from growing at 2,5-3% this year7. As reported weekly, our comparative port throughput volumes are often as much as 10% less than in pre-pandemic times and sometimes even more, as with air cargo. Nevertheless, the worst-performing modality continues to be rail freight, which has been labelled ten times worse than our ports' failings. Consequently, we desperately need to turn things around by fast-tracking the national rail master plan, right-sizing the network, appointing an infrastructure manager, and opening third-party access at preferential operating terms. For trade to flourish in South Africa, we need a robust and smooth-functioning rail network to do its part in our multi-modal approach to satisfying our high freight demand.

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Summary of port operations

The following sections provide a more detailed picture of the operational performance of our commercial ports over the last seven days.

i. Weather and other delays

?????????????? ? Equipment breakdowns and shortages resulted in poor productivity levels at the Port of Cape Town – which recorded ~10 GCH this week.

?????????????? ? Adverse weather conditions in Durban led to ten vessels deviating from their respective schedules.

?????????????? ? Richards Bay, fortunately, had minimal operations delays, as did our Eastern Cape ports.

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ii. Cape Town

On Wednesday, CTCT recorded three vessels at berth and three at anchor as the terminal is still recovering after the SANTACO strike. Stack occupancy for GP containers was recorded at 38%, reefers at 75%, and empties at 69%. Due to the high stack occupancy figure, the reefer export stack was closed from 22:00 on Wednesday to 22:00 on Thursday. In the latest 24-hour period to Thursday, the terminal handled 2 160 TEUs across the quay. 1 110 trucks were serviced on the landside, while 36 rail containers were on hand. Industry concerns were raised once more during the earlier stages of the week regarding the productivity levels at the port. These concerns surfaced after reports indicated that two vessels on berth with approximate balances of 468 and 600 TEUs were only anticipated to complete operations by the following day. Each vessel on berth was serviced by two gangs, indicating that the port was executing approximately ten container moves per hour, which is alarming. For the last two weeks, CTCT has averaged less than 1 000 containers handled daily, substantially less than the long-term average. The multi-purpose terminal, on Tuesday, recorded no vessels at anchor and one at berth. In the 24 hours leading to Wednesday, the terminal managed to service 344 external trucks at an undisclosed truck turnaround time on the landside. During the same period, 291 TEUs were moved across the quay on the waterside. Stack occupancy was recorded at 16% for GP containers, 13% for reefers, and 100% for empties during the same period. The FPT private terminal reported zero vessels at anchorage while servicing two vessels at berth on Thursday. During the prior 24 hours, the terminal handled 50 pallets of fruit and 225 TEUs on the waterside while servicing 127 trucks on the landside. At the same time, reefer stack occupancy was recorded at 13%.

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Durban

Pier 1 on Wednesday recorded two vessels at berth, operated by four gangs, and three vessels at anchor. Stack occupancy was 40% for GP containers and 22% for reefers. During the same period, 1 053 imports were on hand, with 92 units having road stops and 86 unassigned. The terminal recorded 1 292 landside gate moves, with 369 cancelled slots and 99 wasted. The terminal had some issues towards the latter stages of the week with the number of reefer appointments that were booked and ultimately not utilised. Out of the 213 appointments booked, approximately 100 bookings were not utilised. Thus, the terminal encourages transporters to use the virtual gates and ensure they do not make duplicate bookings. The truck turnaround time was recorded at ~106 minutes, with an average staging time of ~111 minutes, as the terminal was very congested towards the end of the week. Pier 2 had three vessels at berth and three at anchorage on Thursday. In the 24 hours to Thursday, stack occupancy was 52% for GP containers and 36% for reefers, with 39% of reefer plug points utilised. The terminal operated with 12 gangs while moving 2 766 TEUs across the quay. During the same period, there were 2 160 gate moves on the landside with a truck turnaround time of ~125 minutes and a staging time of ~208 minutes. Customers were unsatisfied with productivity levels at the terminal this week as low straddle carrier availability and union engagements prevented adequate productivity at the terminal. For most of the week, an average of 55 and 60 straddles were operating at the terminal. Of the landside gate moves, 1 311 (61%) were for imports and 849 (39%) for exports. The terminal was forced to suspend the issuance of slots on multiple occasions throughout the week due to the congestion experienced. In fact, Durban had more than 45 000 TEUs waiting at anchorage, according to the "Port Congestion Watch". Additionally, 248 rail import containers were on hand, with 220 moved by rail on Friday.

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Richards Bay

On Tuesday, Richards Bay recorded 30 vessels at anchor and 17 vessels on berth, translating to five at DBT, five at MPT, five at RBCT, and two at the liquid bulk terminal. Two tugs, one helicopter, and one pilot boat were in operation for marine resources in the 24 hours leading up to Wednesday. The helicopter remains on standby as a contingency measure should the Port of Durban require assistance on the waterside. Concerns regarding the helicopter's workload are justified, as both Durban and Richards Bay could be in serious trouble should the aircraft go out of commission.

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v. Eastern Cape ports

NCT on Wednesday recorded two vessels on berth and two vessels at outer anchorage. Marine resources of two tugs, a pilot boat, two pilots, and one berthing gang were in operation in the 24 hours leading up to Thursday. In the same period, stack occupancy was 25% for GP containers, 32% for reefers, and 52% for reefer ground slots. And in that period, 2 130 TEUs were processed at a GCH of ~14 and SWH of ~37. Additionally, 561 reefers were handled across the quay, while 683 trucks were serviced on the landside at a truck turnaround time of ~34 minutes. The repairs on the Mooring master at the port were completed earlier this week; however, no updates have been received yet regarding the testing of the units. Additionally, the terminal experienced a few crane breakdowns this week, hampered terminal productivity. The latest reports suggest that all cranes returned to service except Crane QC1. The crane remains out of commission as the technical team still awaits spares to execute the required repairs. The preliminary estimated time of return of the crane is 31 August 2023.

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Global shipping industry

i. Global container industry summary

Container volumes have started to decline after a muted peak season, according to the latest figures from Linerlytica. After peaking in July, volume growth has been rising steadily over the 2nd quarter, but the positive trend has reversed on three of the four main trade routes (FE-ECNA, FE-N. EUR, FE-Med). Volumes on the FE-WCNA route are still holding, but growth rates on this route have been negative throughout this year, with support for the recent rate rebound coming solely from capacity cuts. Total capacity on the FE-WCNA route is down by ↓6,8% (y/y), compared to rising capacity deployed on the FE-ECNA (↑3,4%), FE-North Europe (↑7,7%) and FE-Med (↑26,1%):

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This figure was much higher than Drewry's average cancellation rate report (which shows their "Cancelled Sailings Tracker" trending around a 5% cancellation rate18 this week). Skipping sailings was initially a way to reduce capacity during low cargo demand. During the COVID-19 pandemic, missed sailings resulted from port congestion, with ships arriving too late for a new round voyage. With the influx of new tonnage and sufficient available ships, blanked sailings have become standard practice for a different reason. Even with ONE receiving new ships, THE Alliance had the largest percentage of skipped sailings in June and July. ?Elsewhere in the industry, port congestion this week was similar to last week's level and is only affecting 5,8% (1,56 million TEU) of the global fleet (but includes Durban in the top 20 at around 45 000 TEU at anchorage)19. Despite widely reported congestion at the Panama Canal, the restrictions have no material impact on the container sector, with priority passage given for regularly scheduled services and no significant delays reported apart from irregular loaders which can be diverted to the Suez route. The idle fleet has also remained very low at around 0,4% of total capacity.

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ii. Global container freight rates and carrier finances

Global freight rates increased for the sixth consecutive week; however, there are signs that peak season volumes are already starting to fade, and the recent rate rebound could soon run out of steam20. The "World Container Index" increased by ↑2,3% (or $42) to $1 832 per 40-ft container this week21, as freight rates are set to settle just under the $2 000-mark:

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The rate increases were dominated on the Asia-North American routes in recent weeks but have now spilt over to the Asia-Europe routes – this week notably with the Shanghai-Rotterdam route (↑6%), as Shanghai-New York continues to increase ↑5%. In total, the composite index has dropped by ↓71% (y/y) compared to the same week last year and ↓82% below the peak of $10 377 in September 2021. Drewry expects East-West spot rates to remain stable, with small increments likely for now. In the charter space, owners of smaller containerships are settling for much shorter charters and reduced daily hire rates as the market softens22. The 'normalisation' of the sector will significantly assist shortsea and feeder operators, which require flexibility in their operating fleets to meet demand peaks and troughs.

On the carrier financial side, several major players reported Q2 earnings this week, with the following highlights:

?????????????? ? Yang Ming led the container liner peers with a ↓13% (q/q) reduction in OPEX23.

?????????????? ? Zim's Q2's $213 million net loss is four times that recorded in the three months to March ($58m), well off the $1,3 billion profit recorded last year24.

?????????????? ? Following ONE's ↓67% (q/q) drop in earnings, Hapag Lloyd's 2Q results suffered the second biggest quarterly fall in EBIT, as Transatlantic head haul freight rates fell by ↓50%25.

?????????????? ? HMM's liner EBIT fell ↓43%, broadly in line with the peers, as a fall in freight rates offset the increase in volume on the top line26. HMM's volume was up ↑12% (q/q), similar to CMA CGM and ONE, but is significantly ahead of Maersk and OOCL (↑7%) and Hapag Lloyd (↑4%).

Source: SAAFF & BUSA

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Again, have a wonderful week