Retailers in South Africa are feeling the ripple effects of the country’s 2023 port crises, with delays caused by congestion and poor infrastructure starting to filter through in company results.
Underinvestment in infrastructure, lack of maintenance, the effects of corruption, and bad weather. Mix these together, and trouble at South Africa’s busiest ports ensues.
Between 23 and 30 November 2023, the Port of Durban reached a crisis point as equipment failures and bad weather led to a backlog of dozens of vessels and tens of thousands of containers.
This caused congestion along the Eastern Cape coastline, with 46,000 containers stuck outside the Ports of Ngqura and Gqeberha, and Cape Town’s Ports subsequently feeling the pressure.
The piling backlog at South Africa’s largest port, the Port of Durban, at the tail-end of 2023 – with congestion still evident to date – saw vessels with as many 71,000 containers carrying fuel, bulk dry goods, cars and other items being delayed by as long as three weeks as they waited at outer anchorage whilst over 40 km of trucks lined up towards the port at the crisis’ peak.
The South African Association of Freight Forwarders (SAAFF) said that delays at ports have had direct costs to the South African economy of R98 million ($5.2 million) a day, while the movement of around R7 billion worth of goods had been impeded.
Retailers operating in South Africa were (and continue to be) hard hit by the port crisis – destabilising an already rocky economy.
Retailers relying on getting goods through the ports timely and efficiently were negatively affected, with its impact contributing to the retail sector shrinking by 0.9% in November 2023.
This was most recently revealed in a trading update from Woolworths, which took a hit to its South African sales as a result.
In its update, Woolworths said that “the economic environment in South Africa remains challenging, exacerbated by the country’s energy and logistics crises, which continue to impact both business and consumer confidence.”
During a 26-week period (ended 24 December 2023), Woolworth’s fashion, beauty and home business (non-perishables) faced challenges in achieving sales targets due to the limited availability of certain summer ranges. This was “due in part to the late arrival of certain summer ranges arising from congestion at the ports.”
Conversely, the Shoprite Group dismissed the idea that the port crisis affected stock in any of its stores, saying that “extensive planning” months ahead of the festive season peak ensured that stores had sufficient stock.
Regardless, the port crisis continues to hurt many retailers as hundreds of millions of rands worth of goods face delays. Although it has eased since the crisis’s peak, ports have not returned to optimal capacity.
David Owen, a senior economist at S&P Global Market Intelligence, said that “the port gridlock is likely to further dent the economy at the start of 2024 as businesses face greater shortfalls in input supply.”
To add salt in the wound for shipping companies and retailers, companies are increasing fees to try to mitigate lost revenue due to the congestion – which can, in turn, have a ripple effect.
MSC, the world’s largest container line, has applied a congestion surcharge of $210 (R4,020) per 20-foot container for dry cargo through South African ports. This has increasingly led exporters to make use of neighbouring countries’ ports and logistics networks to avoid South Africa.
Currently, movement at Durban’s container terminals remains well below its demonstrated capacity.
Transnet
State-owned railway, ports and pipeline infrastructure group Transnet said that the port congestion problem is “complex” and cannot be overcome immediately owing to serious equipment and maintenance backlogs.
The state-owned entity, which is R130 billion in debt and has a R50 billion backlog in port and railway infrastructure nationwide, has said it would invest in maintenance and new equipment, but this would only begin arriving later on in 2024 and expected to yield results in 2025.
In a meeting of the National Council of Provinces (NCOP) at the end of 2023 to discuss ailing state-owned entities, the deputy minister of public enterprises, Obed Bapela did not mince his words when discussing Transnet’s lack of investment in equipment, infrastructure, maintenance and subsequent corruption.
“Obviously there are challenges [with Transnet] that have been captured and topical now,” said Bapela. Those in charge “did not invest enough in the infrastructure, and in expanding all that infrastructure… some of them are 50 years old, some 60 years old,” he added.
He also noted that money had been spent wastefully and irregularly and had fallen to corruption. “Locomotives have been bought, and unfortunately the way it was done, corruption came in, and as a result, those locomotives are stationary, without parts,” said Bapela.
A way forward
The ideas for solving the issues at South Africa’s port are divergent.
There have been increasing moves and calls to open up South Africa’s ports to private investment. CEO of Business Leadership South Africa, Busisiwe Mavuso said that she believes that “the use of the public-private partnership model will be crucial in upgrading the country’s ports.”
“I have no doubt that the private sector can and will play a more significant role in government-driven infrastructure, thereby reducing pressure on public finances and increasing the number of projects in the public sector investment programme,” she added.
The Western Cape provincial government is urging for Cape Town’s port to be privatised. The backlog has still not eased at the port as over the past four weeks, an average of 7,717 containers per week were moved through the harbour – well below its 20,000 target.
These calls have not fallen on deaf ears. Transnet National Port Authority (TNPA) has called for requests from the private sector for an expansion project that is pivotal in unlocking 14 other mega-projects in Durban port’s container terminal over the next 15 years.
Tenders were issued in both 2016 and 2020, however, both could not go ahead due to “administrative reasons”.
Additionally, there is a proposed deal to sell a stake in Durban’s port to an international company, meaning that the port would ultimately be operated by International Container Terminal Services Incorporated – a company owned by Filipino billionaire Enrique Razon.
PwC’s South African economic outlook for 2024 suggests that supply chain localisation – relying instead on local sources of labour, goods and services, innovation, technology and capital – could greatly reduce dependency on foreign sources, enhance businesses, and work around long delays.
“This involves reconfiguring supply chains by bringing production closer to the end market, sourcing raw materials locally, and minimising dependence on international suppliers. The end goal is to improve efficiency, reduce costs, mitigate risks, and address socio-economic challenges,” said PwC.
Bapale also said that the government “(is) now resolving to re-engineer Transnet” and hoping to ease congestion at the Durban Port.
This is said to be done by “engaging with original equipment manufacturers to bring in and recalculate on that particular aspect, including the new investor that has partnered with the National Ports Authority of SA at the Durban Container Terminal to expand the port to be able to bring the big ships into South Africa.”
A National Logistics Crisis Committee (NLCC) has since been set up to attempt to manage the problems within South Africa’s freight and port logistics system.
The committee aims to meet three main objectives: enhance operational efficiency, implement reforms, and create favorable conditions in the freight storage and transportation system.
Transnet has also created a Recovery Plan for Port Terminals, which targets volume growth and capacity improvement over the next 6, 12 and 18 months. Transnet said this aims to improve operational and financial performance and curb expenses.
“These interventions include securing crucial cargo handling equipment for the ports, awarding of the spares and maintenance service contracts for existing equipment, and resolving the locomotive challenges in [Transnet Freight Rail],” said the company.