Key takeaways:
- Global instability is driving up costs
Rising energy prices, freight disruptions and geopolitical tensions are increasing input costs and creating fresh challenges for South African manufacturers. - Supply chain resilience is becoming a competitive advantage
Businesses are strengthening inventory management, diversifying suppliers and managing currency risk to protect margins and maintain operations. - Oil price and currency volatility are squeezing manufacturers
Higher oil prices, freight costs and a weaker rand are raising the cost of imported raw materials and putting pressure on profitability. - Manufacturing remains resilient but vulnerable
While South Africa's manufacturing sector has shown signs of resilience, rising input costs and ongoing supply disruptions continue to threaten recovery. - Preparation is critical in an uncertain environment
Companies that proactively review inventory policies, optimise working capital and secure supply chains will be better positioned to navigate continued market volatility.
At the start of the year, expectations were anchored in potential ratings upgrades, interest rate cuts, and a stronger rand. The World Bank projected growth improving from an estimated 0.8% in 2024 to 1.8% in 2025, with further stabilisation (2%) in the medium term. However, escalating global risks, volatile commodity prices, and persistent cost-of-living pressures are challenging that outlook.
Rising supply chain costs and manufacturing pressures
Manufacturers are already feeling this impact. They face mounting input cost pressures driven by higher oil prices, freight inflation and supply disruptions, forcing a sharper focus on inventory discipline, supplier diversification and exchange-rate risk management.
South Africa’s manufacturing sector showed modest resilience, with output rising 0.9% year-on-year in March but despite this, manufacturing output still declined by 1.0% quarter on quarter, signalling the recovery’s fragility.
Oil prices, freight disruptions and input cost volatility
“What manufacturers should consider is that margin protection now depends on how well they manage inventory, input costs, and supply continuity,” said Dr. Greg Cline, Working Capital Specialist at Investec Business & Commercial Banking.
“Some businesses are already responding by front-loaded stock to avoid losing customers when supply is disrupted. The blockage of key shipping routes including the Strait of Hormuz, responsible for about 20% of the world's oil has highlighted the scale of exposure. Others are reassessing their inventory costing models to absorb rising replacement costs more effectively. In this environment, preparation matters.”
Oil prices, currency volatility and import costs
Manufacturing remains highly exposed to imported raw materials, transport costs and currency volatility. Oil prices have surged over $100 per barrel during recent conflict, adding pressure on the rand, ultimately impacting local firms that rely on imported inputs. The knock-on effects however extend across the manufacturing base.
A further concern for manufacturers and retailers is fertiliser disruption. Gulf producers account for a substantial share of globally traded urea and other fertiliser inputs, raising the prospect of higher agricultural costs and, ultimately, further food price pressure if shipping disruptions persist.
Inventory planning and margin protection strategies
“There is usually a delay from when the initial shock is felt to when manufacturers fully feel the impact in factory pricing,” said Cline.
“Businesses may still be working through stock bought before the latest escalation, but once that inventory runs down, higher replacement costs start to feed through quickly. That is why we are seeing front-loading of orders and a much sharper focus on stock planning.”
Others are reassessing their inventory costing models to absorb rising replacement costs more effectively. In this environment, preparation matters.
How businesses can navigate supply chain disruptions
From a logistics standpoint, concerns are mounting as manufacturers are contending with rising sea and air freight costs, shifting cargo capacity and higher fuel surcharges. For sectors reliant on time-sensitive imports, these logistics costs can quickly bleed margins and disrupt customer fulfilment.
In response, businesses are being urged to take proactive steps. This includes reviewing inventory policies, identifying alternative suppliers and taking advantage of periods of rand strength to lock in favourable exchange rates.
Tailored treasury and working capital strategies are also becoming critical as firms navigate increasingly volatile conditions.
“This market is defined by risk and uncertainty, and businesses cannot remain stagnant. Instead, they must act,” said Cline.
“Businesses that survive, protect their margins effectively by staying close to their cost base, keeping stock available for customers, and moving early when market conditions improve. In a period of uncertainty, disciplined planning is most certainly a competitive advantage.”
Further listening
Dr Greg Cline shares insights on the energy and freight shock costs rippling through local supply chains.
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