South African Exporters Dodging Bullets

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MSC Only Shipping Line Offering Direct Access To US Markets.

This week South African exporters were hit with terrible news that MAERSK shipping lines will not be providing a direct route to the US markets. This basically means all exports out of SA have to travel to Rotterdam first before then moving on to the US. There however is one shipping line left being Mediterranean Shipping Company (MSC) still offering this service.

The country is relying on one shipping company for all their citrus and grape exports so all the eggs are in one basket. With fruit one can imagine that timings are important because if you get this wrong the entire shipment is ruined. In the past having two shipping lines servicing the needs of the farmers means they could select their timings and now their is no second chance.

Freshness, timings along with precision deliveries leave nothing to fall back on and this is high risk with no room for error. This again highlights how vulnerable the South African economy is and how vulnerable they are in global supply chains. The downside which is obvious is that the MSC shipping line now has a monopoly of this route being the only service provider so they can increase their prices and no one can complain as there is no one else.

Back in February Maersk and MSC abandoned their agreement called AMEX or American Express to share the direct SA to US shipping route. Maersk has now partnered with Haag Lloyd to ship goods via European ports to the US. This has now turned a 13 day route into a 25-33 day shipping time. MSC have doubled down releasing 8 vessels to cover this route which is a big investment.

The US market is a big deal to SA even if you hear it is not as the US accounts for 8% of the total SA GDP. This is I believe will increase even with the 30% tariffs due to the weakness of the Rand which is expected to continue to decline making the goods even cheaper. The wine industry is probably the biggest market that has got room to grow and having to fill these vessels to keep the route open I suggest the pressure is on even more to generate sales.

I do not think you can blame Maersk for their stance due to the conditions of what they have had to work with for years and years of port delays in SA. Throwing good money at bad business is how many would see this and the vessels can be used more profitably elsewhere. This has to be seen as a warning to the Cape Town and Durban Port Authorities as MSC could change their mind if they see no improvements.

Putting things into context Cape Town Port is ranked 405 out of 405 which is ranked according to vessel time in port and performance which in Cape Town's case is the worst in the world. Durban and Port Elizabeth are right at the bottom of the rankings as well so one would hope they offer MSC special treatments for standing by them or they will also abandon the route. If this happens forget tariffs as the citrus industry could never supply the US due to the shipping times.

The government has a lot to answer to as their departments are failing such as rail and ports which is affecting the entire economy. Not only have they failed miserably and let the entire country down with negotiating on the tariffs due to their Black Empowerment regulations they are just failing on all fronts. African countries have always been handed everything on a plate through hand outs and they have no idea how to actually run an economy. I do expect the Rand to tank long term which is very worrying. The Ports are your life lines to growing the GDP and with shipping companies avoiding these ports how are you going to grow your exports?

Posted Using INLEO