Does South Africa really need a public shipping company?

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The government has tabled a bill to create a state-owned SA Shipping Company (Sasco), ostensibly to protect the country from supply chain disruptions.

Just as South African Airways (SAA) was the national air carrier, Sasco would be the national sea carrier.

Lily:

Sasco reportedly owns at least one oil tanker, one chemical tanker, one container ship, one bulk carrier and a limited fleet of ships, all with preferential access to South African ports.

This is to be funded by the Industrial Development Corporation (IDC) and money allocated by parliament.

Plans for a national shipping company are part of the overall shipping policy and were first mentioned in 2017.

“The shipping of our essential imports and exports are mostly dependent on foreign governments and companies, which may not be able to protect South Africa from supply chain disruptions, especially in times of disaster. nature or international conflict,” says a Department of Transportation (DoT) statement.

South Africa is the only one among the Brics nations that does not have its own ships, which makes it vulnerable to supply disruptions, according to the DoT.

Motivation?

The timing of the shipping company‘s announcement is puzzling, coming so soon after SAA’s inglorious financial collapse before it was relaunched as a partially privatized airline, and the multiple volumes of the survey of the Zondo Commission on State Capture in State-Owned Enterprises (SOE).

The idea of ​​setting up another state-owned company makes little sense, says Ghaleb Cachalia, the DA’s spokesman on state-owned companies.

“The supply chain issues are not the result of a shortage of ships, but because of [the] the inability of ports to pull themselves together,” says Cachalia. “International shipping companies are capable of doing the job [of a national shipping company]. All the government has to do is fix the ports and make sure the loading works and the containerization works.

The recent Transnet wage strike has created backlogs at major South African ports, which can take up to two months to clear.

Durban, Cape Town and Ngqura (East London) were ranked in the bottom 10 out of 370 ports worldwide, according to the World Bank’s Container Port Performance Index for 2021.

Lily:

“South African ports are plagued by operational inefficiencies,” said the report.

“For example, earlier this year [2021]freighters entering Cape Town had to wait up to two weeks to dock before customs and unloading could begin.

An equally pressing issue facing logistics providers is moving cargo from ports to hinterlands and moving dry bulk cargo to seas for export. This was delayed by operational issues at Transnet.

Lily:

Viability

Addressing these issues would do more to address the supply chain issues facing the country than starting a new national shipping carrier, says Andrew Pike, port, transportation and logistics manager at Bowmans Law.

There is some merit in the new shipping line, in that it would attract some of the shipping and freight costs currently shifted overseas to international shipping carriers, Pike adds.

“But unless that revenue comes ashore, I don’t see the point of having a national shipping company.

“You need scale if you want to do this competitively, and we’re talking about a very small fleet of ships here,” says Pike.

“It would be difficult to get customers to use this service unless you required people by law to carry a certain percentage of freight at freight rates, which I doubt will be competitive – and that in itself could be considered anti-competitive.”

Pike adds that South African labor laws are not competitive with shipping companies operating in low tax jurisdictions like the Philippines and Thailand, so there should be a compelling reason to use Sasco services, such as tax advantages.

Accompanying invoice

The Sasco Bill is to be accompanied by a new Merchant Shipping Bill, which provides for cabotage, or the requirement to ship between a country’s ports on that country’s own ships.

Forcing companies to unload their cargo and reload it on Sasco vessels for transport between, say, Cape Town and Durban, would be both time-consuming and costly, adds Pike.

Among the stated objectives of the shipping company are participation in the import and export of goods as the preferred national carrier, the ownership and management of a fleet of vessels, and the provision of associated services such as customs clearance, stevedoring, warehousing, logistics, refueling, bulk cargo and cabotage services.

Pike points out that these services are already well served by a host of companies operating in South Africa, and maritime customers are unlikely to switch to a national carrier without compelling reason.

Safmarine, established in 1946, operated as SA’s flag carrier but was sold in 1999 to Maersk Line. The two largest international shipping companies operating in South Africa are Maersk, partly due to Safmarine’s fleet and business heritage, and MSC.

Rather than buying ships directly, another possibility is to charter ships, which would require less capital outlay.

Palesa Phili, CEO of the Durban Chamber of Commerce and Industry, says healthy competition is good for business and any new business entering the shipping industry is positive and should lead to more competitive prices.

“At this point, we are deeply concerned about the state’s ability to run a public company. The government does not have a good track record, and there is not a lot of trust in [its] ability to manage SOEs. South Africa’s state-owned enterprises are in a state of financial and operational collapse, suffering from chronic mismanagement, plagued by persistent corruption and characterized by a complete lack of adherence to governance frameworks and effective compliance. We firmly believe [the] the private sector must be allowed to engage in the process to ensure that a fair and transparent strategy is formulated.

The Covid pandemic, the July 2021 riots and the April 2022 floods in KwaZulu-Natal have taught the business world to rethink the way it does business. “Businesses need secure, efficient and future-proof supply chains,” says Phili. “By allowing local businesses to enter the maritime sector, we believe this will lead to job creation and positive economic benefits across the entire maritime value chain.

The Durban Chamber of Commerce and Industry believes it is important for ports to be fixed and efficient. International and potentially local shipping companies need efficient ports to operate. However, we believe that the situation should be considered separately. We cannot give up economic progress at the cost of systemic problems. Transnet is responsible for port management, this means that Transnet must be held accountable. »

This article has been updated to include comments from the Durban Chamber of Commerce and Industry.

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