Almost 100 cargo vessels are waiting at anchorage outside South Africa’s commercial ports as Transnet’s congestion crisis costs the country at least R124 billion a day – and maybe even as much as R263m.
Equipment breakdowns and shortages, as well as poor weather conditions, have left tens of thousands of containers out at sea as cargo vessels queue to enter the ports.
The South African Association of Freight Forwarders (SAAFF) says there are currently 96 vessels waiting at anchorage outside the country’s commercial ports, and this is directly costing the economy R98 million a day in direct, sunk cost – also known as retrospective cost, which refers to an investment already incurred that can't be recovered – and at least R26 million a day in indirect cost.
The congestion is also impeding the movement of more than R7 billion worth of goods each day.
Basically, South Africa's commercial ports – and, by implication, its extended end-to-end logistics network, are in a crisis, says SAAFF head of research and development Jacob van Rensburg. Furthermore, the crisis is arguably more significant than the October strike of last year.
“The massive economic cost of 96 vessels currently waiting outside our ports at anchorage cannot be understated, and the current situation must be put into perspective.
“Despite being in a crisis, port operations in the last week were once again bedevilled by poor weather conditions as well as equipment breakdowns and shortages. Nevertheless, there has been an improvement in Cape Town and Port Elizabeth; however, Durban terminals remain severely delayed – currently at around nine days.”
To put some further context into the “staggering” waiting times and quantify the current cost, he says one needs to consider what this means for the country’s economy.
“The additional direct logistics cost – simply put, the cost of the current situation, amounts to at least R48,5m of pure, sunken cost just sitting outside at anchorage per day. Furthermore, with the port congestion surcharges for containers awaiting implementation, this figure jumps to R98m of pure, sunken cost per day.
“In addition, the direct logistics costs involved in shipping goods through our ports in perfect conditions, in normal conditions, is around R1bn a day. Therefore, we are already paying nearly 10 percent more with the current conditions in direct cost.”
However, the indirect logistics cost far outweighs the effect of the direct logistics, he says, explaining that, with all the vessels outside, the current impact in opportunity cost is stopping the movement of at least R7bn worth of goods. Furthermore, if one considers the time delays in costs, the time variability (depending on the commodity, the origin-shipping line combination, and several other factors) indirectly adds between 3.9 percent and 24.5 percent of the value of the cargo.
“Therefore, with the most conservative estimate, the current delays are adding at least R26m in indirect costs (and possibly as much as R165m).”
Van Rensburg says it is important to note that the international shipping industry works on schedules, with commitments made to call at specific ports at specific times. Currently, the shipping lines' commitments cannot be honoured as the queue waiting to call is way too long for the system to handle, hence the reaction of implementing port congestion surcharges to recover some cost.
This also explains why the lines are choosing to ship cargo to and from South Africa via the hub port of Port Louis.
These unintended consequences further impact cargo owners – especially SMMEs.
“As a consequence, additional lead times are added to supply chains. Moreover, most SMMEs typically only cover a week's worth of buffer stock, as stock inventory costs are already high – with loss of sales starting from around 15 days. These losses will soon commence for some SMMEs, as alternatives such as shipping via airfreight (at a far higher cost) are not a viable option for many.”
Current port performance in numbers
The SAAFF reveals these to be the handling figures across South Africa’s commercial ports in the past week:
– Cape Town Container Terminal (CTCT) handled 1,582 (+5 percent week-on-week) containers a day
– Durban Container Terminal (DCT) Pier 1 handled 1,404 (-2 percent week-on-week) containers a day
– Durban Container Terminal Pier 2 handled 2,889 (-4 percent week-on-week) containers a day
These are all much lower than the demonstrated capacity of the terminals, which is about 1,800 and 3,400 for CTCT and DCT Pier 1 respectively. Therefore, van Rensburg says, these volumes are around 84 percent of the volumes that the terminals have shown that they can handle.
“Fortunately, however, the volumes are around 28 percent more for CTCT and 13 percent more for Durban than the average from January 2022 to the present, which shows some improvement.”
How did we get here?
SAAFF says a significant issue has been the state of affairs in Transnet, which is currently facing significant challenges due to an aged fleet and historical underinvestment in strategic equipment. However, on the plus side, immediate collaboration with industry partners is underway to source available equipment.
Furthermore, a long-term OEM (original equipment manufacturer) strategy, to be concluded by hopefully the end of the year, aims to address equipment challenges by awarding contracts for major equipment across 48 brands. The strategy includes a 10-year supply of OPM (original parts manufacturer) spares for maintenance.
Container handling equipment is expected to be delivered within six to 24 months.
What must be done?
Van Rensburg says Transnet has continually emphasised the importance of private-sector partnerships to modernise infrastructure and enhance operational efficiency, with ongoing collaboration to improve service delivery.
“These proposals are at the heart of our potential recovery, as the current operating model is archaic and needs to be revolutionised.
“Ultimately, we need a concerted effort from all parties – not only Transnet, not only the extended government working in this industry, and not only the private sector represented by the cargo owners, freight agents, shipping lines, and other related parties, but everyone, together. And with a sense of urgency that the situation desperately needs.”
SAAFF explains that the art of moving goods is a culmination of many role players working together, with the need for collaboration at all the critical activity handovers and the necessary responsibilities that each milestone demands.
“We must improve operational efficiency and increase throughput, or else the trade, transport, and logistics industries will continue to curtail desperately needed economic growth for South Africa. All economic actors have a vested interest in our commercial ports operating at full tilt – whatever the current situation.”