Importers' Connect

In importing, timing matters, delays matter, currency moves matter. This is Importers' Connect, your weekly briefing on the logistics, freight and forex trends shaping South African trade. From port congestion and customs updates to shipping costs and market movements, we bring you the insight behind the headlines so your business can plan with greater certainty.

Vernon: Welcome to another episode of Importers Connect. I'm Vernon Sinden.

Francios: And I'm Francois Hermann.

Vernon: So today we're going to speak about the weather, kind of trying to predict the weather, so to speak, because I think we've mentioned it a few times, Francois, on the podcast,  how weather can really influence the supply chain from various regions. But I think lets start with China, the Typhoon Dolphin aftermath,  the current situation, what we're seeing at the moment, as it's still unfolding.

We don't know what the impact is going to be just yet. They're saying that it's going to be the strongest typhoon to hit China since a year force closure in China ports out of Shanghai and Ningbo., China's two most important export gateways. Just to give you some numbers out of that region, at least from Shanghai and Ningbo, it's about 67 vessels at anchorage, and that's approximately just over 680,000 TUs waiting in queue, .

And then the delay there is between four to eight days, depending on the terminal, and then Ningbo three to five days. So that really having impact on the full end-to-end transit time. So I think that's just something to keep in mind and consider as that unfolds and to really negotiate with your supplier or with your freight forwarder or your partner for extended terms there, because the longer it takes, there could be additional surcharges that could take effect.

Do you agree, and are you seeing the same in other regions?

Francios: Yeah, I think to touch on China even further,  we're so used to China running very smoothly and seamlessly. We never really in the past experienced any delays at origin, so from the Chinese ports, usually, we are the culprit. I think if you look at Durban and Cape Town and Transnet as a whole over the past five years or so, the delays are usually at destination.

So this is something I don't want to call unique, but definitely something that we need to keep an eye on. I mean, if two of the world's biggest ports closed down for 72 hours, closed their operations, more than a million people were moved to safety in China. It's a massive humanitarian, I don't want to call it crisis, but it's a spectacle.

It's something massive, and I think it makes it even worse that the weather season for the typhoons in China at the moment is at its peak. This is the third typhoon in a row now, so I think that we have to keep an eye on that. I mean, it can possibly get worse or it can possibly stay the same. But if we look at other regions like you mentioned now, I think the biggest risk at the moment or the biggest region to also look at is Europe.

I haven't heard of people in London complaining about water restrictions in the past. Apparently, there are water restrictions in place at the moment. But the biggest gateway in Europe, maybe take a step back. In Europe, they don't just rely on roads to move cargo from warehouses and manufacturers down to the ports.

They rely on their river system. So the River Rhine, the Danube River, there's a few of them that are facing extremely low water levels. Some of the areas in the rivers are currently at like 12 centimeters deep. So what that then causes is a lot of these manufacturers are based inland, and they have to truck cargo or machinery, equipment that they manufacture down to the rivers.

That then in turn gets loaded onto a barge vessel. So it's a small barge. We know it on the Vaal Dam when you go and have a few cocktails. These ones are just used to actually load the cargo on. And these barge vessels at the moment with the low water levels and the droughts, they can only carry 30% of the capacity that they are supposed to carry.

That caused a knock on effect and a spillover. More people are then looking at rail to move cargo to the ports. More people are looking at trucking. And it also doesn't help that we're sitting in the middle of the European summer holiday season. A lot of their truckers go home, back to Eastern Europe, back to their families.

So it's almost a, a double-edged sword.

Vernon: big knock-on effect?

Francios: Very much  so you have less drivers in the market, extra capacity needing to move to ports. So your delays, like you mentioned from a Chinese origin side are there, from a European origin side and then obviously South Africa's not  the perfect picture at the moment as well.

Vernon: We mentioned it on the last podcast , Durban and Cape Town we do have our challenges there in terms of port congestion, and that also does fluctuate and change on a regular basis. Very fluid. But I mean, just to touch on a few things,  what we're experiencing,  if we're talking about the weather out of China and how it's influencing your full end-to-end supply chain, the knock-on effect is it's missed feeder vessels, schedule reliability, the rolled bookings, the shortage of equipment or the,  the rollovers there.

So yeah, it does have a big knock-on effect, but the thing is, it's forever changing, and I think it's important for importers listening to the podcast today at least, is just to keep an eye on the weather, no pun intended, but I mean, it does change on a regular basis.

I mean, we can't predict it, but I mean, out of China at least when we're looking at the typhoons, it does have a massive impact on your supply chain. I mean, speaking to partners, speaking to shipping lines, it's very hard to predict in terms of schedule reliability, again, looking at the end-to-end supply chain,  what does that mean?

And also  the commodities that you're importing in South Africa at least, it does have a big effect. And also on production, keeping cargo on, keeping product on the shelves. Andnif you're wanting to make  your Black Friday or your Christmas sales, you've got to take that into consideration also.

September is the deadline to get that stuff here in time by November or December.

Francios: Yeah, I think it's important not just to look at what the shipping lines publish in terms of how long the transit time is on the water. Like we mentioned, now you can add on an additional 7 to 14 days of delays at point of origin as well before it actually gets onto the vessel.

So it's basically doubling some of the transit times that we're seeing, doubling some of the lead times. So it's really important to already reach out to your suppliers in China and Europe, the areas in the world that are currently facing all of these weather challenges. Ask them, can they already start production so that you can place a booking with a freight forwarder or your partner to actually ship the cargo in September already to make your Black Friday deadlines, to make your Christmas stock deadlines.

You don't want to miss out on making sales. Your cargo's still on the water and only gets here the week after Black Friday. That defeats the purpose.

Vernon: Yeah, I think also history is the biggest storytellernand we learn from experience. But we spoke about it earlier today where you mentioned just in terms of the rate levels at least coming out of the Far East, if I remember correctly, the difference between last year and this year. So maybe just unpack that a little bit more.

Francios: Yeah, I think it's quite interesting. I think with all of these delays, if you look at the past, freight rates would've increased dramatically. You have a lot of cargo that needs to ship and you don't have a lot of capacity because of all of the vessels bunching outside the ports and schedule reliability is very low.

But what we're seeing actually from a freight rate point of view from Shanghai to Durban is that if you compare it to last year August to this year August, and you purely look just at the freight rate and you use the rate of exchange, so the rand/dollar rate of exchange It's actually about 20 to 25,000 rand cheaper this year compared to last.

Look, a lot of it's to do with the rand that strengthened a lot. Last year, the rate of exchange was around 17.50, where at the moment we're looking at 16 rand 20 to the dollar. But your freight rate is actually hasn't increased that dramatically as we would have expected it to. But taking that into consideration, like you mentioned to me as well this morning, is that you can't just look at the freight rate, you have to build in your lead time as well.

Vernon: So I mean, the weather is one thing, but it's not all doom and gloom if you have to compare all the challenges and all the delays that we're experiencing this year in comparison to last year and the year before last. And obviously we always look back at COVID and we compare rates and the big issues that's an anomaly. I mean, in supply chain and logistics, there's always going to be disruptions.

There's always going to be something that pops up that's going to cause delays. The thing is how do we mitigate that risk? And again, we mentioned it on the podcast a few times, it's like, just to have the optionalities.

Keep your options open, not just look at one shipping line in isolation or ask for your partner, your freight forwarder, ask for solutioning and we can support you there.

But I think there's a combination of weather events that are happening at the moment, which I just want to list here. It's the China typhoon backlogs, the Shanghai-Ningbo vessel bunching like you mentioned, the Singapore transshipments and the India ports that we've mentioned before on the podcast I think two episodes ago.

And  the Red Sea routing, the Strait of Hormuz, which is an ongoing issue. And then as you mentioned now, the Rhine, the drought there. And then North Europe, the inland trucking like you mentioned. So these are just to name a few.

There's a few things happening at the moment and a combination of these things does cause delays and obviously does cause increase in your rate levels and cause transit time increases.

We're trying to paint a picture that it's not all doom and gloom at the moment. If you compare it to prior years in terms of rates, the weather events are always going to be there. It's just try and mitigate the risk. So history is telling us a story here, which we've always learned from the past, right?

Francios: I think if you look at the weather, it's every year you have your seasons of typhoons and you have your seasons  of monsoon in the Asia region. We're sitting with El Nino that's coming up as well. So I think all of these weather disruptions are going to become a bit more extreme over the short term.

That's just what El Nino has taught us in the past. So I think it's very important to look at your total lead time when you need your stock here on the floor by. And like you mentioned, it's not all doom and gloom. Still a lot more price competitive versus last year, just from a freight component, and that takes into consideration even with our diesel prices.

Diesel is priced in rand, so that helps us a lot from a local trucking point of view. Yes, it is more expensive to move your container from Durban up to Joburg, but if you look at the total landed cost of that, taking into consideration the freight and the rate of exchange between the rand and the dollar, there's a silver lining.

Vernon: Then again, I think we've mentioned it before, just look at the mode of transport and what kind of stock levels you need on the shelf. Air freight is always an option. We can give you alternatives there. It's not just the transshipment delays that's the biggest impact here. It's a few variables.

So I think in closing, please keep your eye on the weather. We'll support you and guide you if and anything changes with the shipping line schedule, reliability, rate levels of course. And then reach out to us again, I've mentioned it before, just for optionality. We'll see where we can support you.

Francios: Until next time, trade confidently.

Disclaimer: The views and opinions expressed in this podcast are for informational purposes only, and should not be considered financial, investment or other professional advice, guidance, or recommendations. Investec Business and Commercial Banking is a division of Investec Bank Ltd, an authorized financial services provider.

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