July 17, 2024

Mckerrinkelly

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Importers still not feeling relief – here’s why?

2 min read
Importers still not feeling relief – here’s why?

By Denys Hobson, Investec for Business, Head of Logistics. South Africa’s is economy is yet to stabalise let alone recover. Of course, there are many factors that contribute to this delay – compounded by local and global challenges. Loadshedding is a perfect example that hinders economic and employment growth. A weaker Rand and increasing interest rates also place far greater pressure on landed costs, cash flow and ultimate feasibility thus negatively impacting consumer demand.

There are of course some pockets of relief as freight rates continue to soften, as well as capacity becoming more freely available on some trade routes. Unfortunately, while positive, these improvements are being negated by the other forces at play and as a result, many importers are still not feeling the relief they expected or hoped for. There is also a clear contrast when comparing capacity availability on the Far East trade to that of Europe and the USA.

While capacity is more freely available on the Far East trade, the reality is that carriers are operating their vessels at a higher utilisation factor on the Europe and USA trades to South Africa. Furthermore, while demand from Europe is more consistent, and vessels are generally fully booked in advance, direct sailings from the USA are still limited and these vessels are also fully booked in advance, given the limited capacity currently on offer for direct routings.

Schedule reliability

Added to this, is the fact that while schedule reliability has improved, albeit in small increments, the reliability is still not at the same levels as pre-Covid and carriers are still confronted, at times, with maintaining their scheduled port calls and rotations. Recent severe local weather conditions and operational constraints at South African ports has also impacted vessel berthings and discharges, which has contributed to additional days in lead times.

Lastly let’s not forget that inflation and better than expected new employment numbers in the USA continues to be a topic of concern for the Federal Reserve. The latest inflation figure released (6.4%) is down, but it remains far higher than the 2% target inflation. What this means is that the strong labour market, while likely to fuel demands for higher wages, in turn, places additional pressure on inflation. As a result, the Federal Reserve has indicated that the central bank will continue to raise interest rates – and of course we know that this will fuel a stronger U.S. Dollar and the Rand will remain under pressure.

Relief is there, but tough to come by in compounded market challenges – making it critical for the sector to explore viable solutions that not only help navigate the challenges but unlock the much-needed relief as well.

 

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