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South Africa’s logistics industry struggles in June

After two tense months, South Africa’s logistics industry recovered in June. The Ctrack Transportation and Freight Index (Ctrack TFI) rose 1.3% in June from May and 5.0% from a year earlier, slightly up from May’s 4.7% year-over-year increase. There is no real increase from the index levels before the flood in March, and the industry as a whole has been catching up over the past two months.

“Many challenges remain and continue to weigh on the various sectors that make up the Ctrack Transport and Freight Index, as well as the economy as a whole, from a decline in productivity due to an increase in regular load shedding to Phase 6, and a surge in fuel prices in recent months.”

Hein Jordt, CEO, Ctrack Africa

As has been the case for the past two months, when individual sub-sectors are analyzed separately, there are distinctly different trends. Three of the six sub-sectors of the Ctrack Transportation and Freight Index reported growth in June, with pipeline transportation being the best performer, followed by road and air freight.

South African logistics industry in trouble

Conversely, three sub-sectors saw declines, with warehousing and handling (warehousing) and ocean shipping contracting the most, while the heavyweight rail freight industry remained under pressure. In addition to various ongoing challenges, both maritime and rail were hit hard by flooding in the Durban area in April and are still recovering.

Liquid fuel transportation via Transnet Pipelines (TPL) has increased significantly over the past two months, with the pipeline sub-sector of the June 2022 Ctrack Transportation and Freight Index growing 21.0% year-over-year. An important factor in this growth is that local fuel production has been on a downward trend, with four local refineries currently not operating. Historically, South Africa has relied on imports for less than a third of its refined fuels, but the situation has changed significantly. The biggest factor driving the closure of local refineries is uncertainty around who will pay for the necessary upgrades and modernizations to adapt South African refineries to the government’s new clean fuel regulations, which will come into effect in September 2023.

SA’s largest refinery, Sapref, a joint venture between BP and Shell, is closed, while the former Caltex (now Astron) refinery in Cape Town and Engen’s Durban refinery have both closed. In Mossel Bay, the gas supply to PetroSA has been largely depleted, forcing it to close. Therefore, the only local production originates from Sasol’s synthetic fuel plants in Secunda and Natref in Sasolburg (a joint venture between Total and Sasol).

In July 2022, Natref unexpectedly declared force majeure, warning that it may not be able to meet all of its obligations to supply gasoline, diesel and jet fuel to customers due to a temporary shortage of crude feedstock. Fortunately, the situation was resolved in the ensuing weeks. The shutdown meant South Africa had to rely on imports for 80% of its total fuel needs for a short period of time, compared to 60% in the recent norm.

The result is that South Africa has become more reliant on fuel imports that must be transported by pipeline to inland markets, explaining the recent growth in pipeline transport.

Despite the N3 being blocked for a few days in June, road freight continued to grow strongly, up 16.9% year-on-year. The number of heavy trucks on the N3 and N4 toll routes also increased significantly from a year ago, while national road freight payloads continued to grow in June. Furthermore, road freight clearly occupies the space created by the continued underperformance of the rail industry in recent years, a narrative that will likely persist for some time.

Is there growth?

Air transport continues to grow steadily as international supply chains gradually recover. The airfreight portion of Ctrack TFI increased by 10.1% in June compared to a year ago. Total airport movements (passengers and cargo) at the consolidated airport rose 19.1% year-on-year in June, compared to 31.1% in May, but the calculation is on a lower base as economic activity remains constrained by COVID-19. restrictions last June. However, the grounding of Kulula flights in early June had a significant negative impact on local flights, down 17.5% compared to May. Growth in air cargo provided a buffer for the sector, which grew by 7.4% year-on-year, and we are likely to see more growth in the future as international tourism recovers further.

Compared to a year ago, the seaborne sector declined significantly by 10.6% in June, but in June there was a welcome recovery in container handling not only at the Port of Durban, but also at the ports of Gqeberha, East London and Ngqura. Container handling at the Port of Durban in June was 5.3% higher than in March (before the flood), thanks to Transnet Freight Rail (TFR) containers between Durban and Cato Ridge on 13 June The corridor reopened a line, a rail line that has been out of service since April 11. The recovery is indeed good news and further growth is expected as the main line releases more rail capacity in September, when the second line is scheduled to complete repairs and reopen to traffic.

Inadequate infrastructure and crime on rail lines remain an ongoing problem. Finally, the warehousing and handling sub-sector remained under pressure in June, down 15.1% year-on-year.

Ctrack TFI and GDP growth

It is well known that the performance of the transportation industry is closely related to a country’s gross domestic product. In South Africa, the logistics sector has outperformed the broader economy in the post-COVID-19 recovery phase.

“While real GDP growth in the first quarter of 2022 was stronger than expected, the economy lost momentum in the second quarter due to the impact of the KZN floods, periodic load shedding, rising inflation and rising interest rates. Ctrack Transport and Freight June 2022 The index indicated that second-quarter activity in the transport and freight sector remained unchanged compared to March index levels, confirming expectations and implying no quarter-on-quarter GDP growth in the second quarter of 2022,” concluded Yotte.

Posted by Ctrack South Africa on Motorpress

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