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A export & import SA APRIL 2017

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B export & import SA APRIL 2017

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1 export & import SA APRIL 2017

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Political turmoil in South Africa seems set to be the biggest upset to the import and export sectors in 2017. Cabinet reshuffles, mass protests calling for the resignation of President Jacob Zuma, widespread allegations of state capture at the hands of the now infamous Gupta family, a ruling ANC seemingly at war with itself, and downgrades in the country’s credit ratings are all contributing factors to what promises to be a very difficult year ahead in business.

Strangely though, one would have thought that the rand would have tanked with all of the above factors resulting in credit downgrades. Yet this has not happened. The effects have been surprisingly mild. I’ve listened to a number of expert opinions over the past week or two about why the rand appears to be so remarkably resilient in the face of all these political blunders and the resultant downgrades.

Sadly, it does not appear to be the result of some newfound confidence in the country, but rather a general lack of confidence on an international scale that has caused the markets to not really react as dramatically as one would have expected in the face of all the political turmoil.

Still, with more corruption and state capture allegations surfacing daily, I am wary of being too optimistic at the moment. One only has to look at the corruption allegations in the meat importing sector at the moment to realise that things can still turn either way at any time.

Meat imports from 21 meat processing plants in Brazil has been halted after a two year investigation revealed corruption on a massive scale involving the import of chemically treated rotting meat.

This is cause for huge concern, with Brazil being our largest source of imported poultry. Especially in light of the fact that the investigation into these allegations has been running for the last two years already. How much rotten meat did we end up importing, and ultimately, consuming?

While I will remain cautiously optimistic, it is still too early to tell what eventual impact all the political turmoil, blatant corruption by the top echelon of the political sphere, and allegations of state capture will have on industry in South Africa.

Here’s hoping for the best

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Export & Import Southern Africa is now available online Visit www.exportsa.co.za

Johan MeyerEditor

&importexportSOUTHERN AFRICA

contentsApril 2017 Volume 15 Number 4

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14

16

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32

Special Focus

Brazilian companies at high risk of payment default ...................................... 4

Government suspends imports from Brazilian meat processors ................... 6

From farm to fork policy guarantees safety and quality of EU meat ............. 8

Tunisian trade delegation commits to economic cooperation with

Eastern Cape .................................................................................................... 10

International Trade Exchange Rates .............................................................. 12

Light in the export tunnel for Hong Kong ..................................................... 13

Finance & Insurance

Close the gaps in perishable and cold storage insurance ........................... 18

Transport & Logistics

Mitigating risks with video telematics ............................................................ 20

Truck industry shows growth despite economic slump ............................... 22

Warehousing

Growth of online retailers tip balance for UK logistics providers ............... 24

Freight Forwarding

Introducing: the new APAC Forwarding Index ............................................ 26

Air Freight

Air cargo growth outpacing trade growth: upward trend continues .......... 28

Ports & Shipping

Global Shipping Fleet Braces for Chaos of $60 Billion Fuel Shock ............. 30

1,1 million USD maintenance dredging campaign underway at

Port of Cape Town........................................................................................... 32

Regulars

Credit Guarantee Country Profiles

Uganda ............................................................................................................. 16

United Kingdom .............................................................................................. 18

2 ExPorT & ImPorT SA APRIL 2017

&importexportSOUTHERN AFRICA


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ExPorT & ImPorT SA APRIL 20174

Brazilian companies at high risk of payment default

Brazilian companies are currently faced with a challenging economic environment. GDP saw an accumulated contraction of 7,4% between 2015 and 2016 and credit

conditions deteriorated against a backdrop of more restrictive credit supply and a tighter monetary cycle. The GDP forecast for 2017 is lackluster at 0,4%.The car-wash operation, the biggest and longest corruption investigation ever carried out by the Federal Police of Brazil, has not only influenced the performance of major conglomerates involved in the scandal, but has impacted the activities of companies that rely on sales to the groups under investigation.

The bleak economic environment has overshadowed payment behaviour. Coface’s payment study has revealed that in 2015, 75% of the companies interviewed received requests for payment extensions from their clients. The majority (58%) experienced an increase in their delinquency rates in 2015 compared with 2014. In 2016 the delinquency rate was lower at 46%.

Payment experience by sector

The bleak context of the Brazilian economy has clearly taken a serious toll on various sectors. Coface’s sector risk assessment does not currently classify any of the country’s segments as low risk. The paper-wood and pharmaceuticals segments (both at medium risk) have shown higher resilience than other sectors. In contrast, metals, energy, construction, automotive and agro-food are all classified at very high risk.

Average credit sale periods are divergent among the sectors, although in most segments they do not exceed 60 days. Only the construction and agri-food sectors granted credit periods of over 120 days. Interestingly, construction is the only sector which did not report sales periods of below 60 days.

In terms of payment behaviour by segment, delays appear to be high in almost all industries. Information and communication technologies and construction are the most affected. All these companies report payment issues.

Surprisingly, the least affected is retail, at 36,8%. This is a somewhat unexpected due to the recent poor performance of retail (-6,5% in 2016) which is strongly influenced by weak income fundamentals (the unemployment rate stood at 11,5% in 2016 – a rise of + 3,1 percentage points in one year). However, it should be noted that Coface’s limited database may have influenced this result.

Average overdue days per sector are, for the most part, up to 30 days. The only segments which reported delays of over 120 days were construction and agri-food. Both these sectors work with relatively longer terms of payment. It is also of interest to note that none of the cases in Coface’s sample exceeded 150 days.

By Coface, the international trade credit insurance company

Special Focus


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Government suspends imports from Brazilian meat processors

The South African government has suspended imports of meat from establishments suspected to be involved in the Brazil meat

scandal, where it was revealed that South Africa was receiving imports from Brazilian meat and poultry producers that had been covered in carcinogenic chemicals to mask the smell of the rotting meat.

A total of 21 meat processing plants in Brazil had been closed down and at least 30 people were arrested after a two-year police investigation revealed widespread corruption in the Brazilian meat export market, where inspectors were bribed to issue fake certificates for rotten produce.

China and Hong Kong, Brazil’s largest export markets, immediately banned all meat imports from the country.Figures released by the South African Poultry Association showed the country imported 233 787 tons of poultry from Brazil in 2016. In January this year, poultry imports from Brazil amounted to 21 027 tons.

South Africa is joining a chorus of other countries after China, the European Union, South Korea and Chile announced restrictions of red meat imports from Brazil due to recent

evidence showing that Brazilian meat-packers have been selling rotten and substandard produce for several years, especially to export markets.Brazil’s Agriculture Minister, Blairo Maggi, said the government had suspended exports from 21 meat processing units.

In a statement, the Department of Agriculture, Forestry and Fisheries (Daff) said it has requested the Brazilian authority to provide official information and a list of establishments that have been identified in the meat scandal.

“Daff has also advised the Brazilian authority to ban all exportation of meat from such establishments until the issue has been resolved to the satisfaction

of the South African Veterinary Authority,” the department said.

“It is not known how many consignments may have already left Brazil and are on their way to South Africa. However, Daff is in the process of ensuring that the establishments implicated are suspended from exporting meat to South Africa until the Brazilian Veterinary Authority has fully investigated the matter and can give the necessary assurances for compliance to the South African requirements for importation of meat into South Africa.”

Daff said its officials at all ports of entry which receive meat had been instructed to test every container of meat from Brazil using the existing policies regarding testing of consignments.

Consignments arriving at the ports of entry in South Africa may be tested microbiologically for organisms such as Salmonella.

“Daff wishes to assure consumers that the officials at ports of entry have always been vigilant on meat imports from any country to ensure compliance with sanitary requirements which are put in place to protect both the consumers and animals against food safety hazards and animal diseases respectively.”


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The meat industry has been rocked recently by scandals concerning the import of meat products to South Africa, with

the most recent scandal resulting in the blacklisting of several poultry producers in Brazil.

During a visit to Poland last year, the European meat industry, through the auspices of the Meat from Europe collective, an initiative funded by the European Union, expressed its aim to begin exporting meat to, among others, South Africa.

In light of recent scandals regarding the quality of imported meat, the meat from Europe collective was quick to assure prospective South African buyers of the high standards that the EU imposed on the meat industry in terms of quality and safety.

European Union (EU) meat industry producers are taking their shared responsibility for food safety very seriously amid global concerns around the quality of imported meat and the processes involved for quality assurance.

South Africans can find comfort in the knowledge that the imported meat they receive and consume from Europe undergoes stringent and traceable processes to guarantee its safety and high quality standard. The EU’s “From farm to fork” concept drives this process.

The "From farm to fork" concept involves many elements that have a positive impact on the safety of food at each stage of the production chain, starting from farms to consumers’ tables.

Since the EU hygiene package was implemented, the concept has been considered as the basic rule in the food policy of the EU and it is diligently executed in each country where their pork, beef and their retrospective products are imported.

In accordance with this concept, but also with provisions of the EU law, European meat industry producers are obliged to ensure the flow of information in the food production chain.

In practice, the "From farm to fork" concept is carried out through an effective system of identification of

suppliers of raw materials, feeds and farm animals. One of the most important elements of this concept is the identification of sources of risk through the system of tracking and tracing of the origin of food.

A crucial part of the concept is communication throughout the stages of the production chain. This communication must go in two directions, ensuring the fluidity of data from all parties from farms that undergo inspections carried out by veterinary physicians, and in the opposite direction.

This is known as "one-step-backward, one-step-forward" and allows for full traceability of pork, beef and their allied products. It also enables tracking and tracing of the origin of pork and beef and to obtain information that traces the shipment history of a given raw material.

Monitoring and traceability of animal feedsThe obligation to track and trace the origin of food and animal feeds in the European Union stems directly from the regulation (EC) No 178/2002 of the European Parliament and of the Council.

From farm to fork policy guarantees safety and quality of EU meat


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The introduction and application of

traceability systems in the EU is a legal

requirement. General principles and

basic requirements concerning creation

and implementation of the traceability

system are given in the PN-EN ISO

22005:2007 norm.

The system guarantees the flow of

information in the whole food

production chain. Its scope covers the

origin of raw materials, history of

processing and distribution of the

analysed food.

In practice, it means that each batch

of animal feed on the territory of the

EU is fully traceable, and the

documentation from the transport of

feed, from the place of its production to the farm where animals are bred, is kept.

Use of attested animal feeds, together with prohibited use of antibiotics, growth hormones and other growth stimulants guarantee that consumers are provided with completely safe pork, beef and related products manufactured in the EU.

Traceability of animal breeding In order to ensure the link between individual processing stages within the supply chain, animals are given unique identification numbers from birth. Identification ear tags, computer databases, animal passports and individual registers at every farm form part of the cattle and swine registration and identification system. These methods allow tracking and tracing the origin of pork and beef within the supply chain.

Traceability of production of animal origin food

Among many rules present in "From farm to fork" concept, special attention

is paid to veterinary control over the

slaughter process. Each head of cattle

or swine is examined, guaranteeing

that meat comes from a healthy animal

and allowing for effective monitoring

the production process.

The policy also covers distribution and

labelling of pork, beef and similar

products. Lack of interruption of the

cold chain must be confirmed with a

note in the report concerning the given

batch of products.

Product labelling enables its full

traceability and includes details on the

type of meat, producer, batch number

and the use by date.

EU producers of pork and beef have

implemented specific rules on all

stages of the food production chain,

starting at the primary production

stage and finishing at the final

consumer stage.

By working in line with this concept,

they are able to guarantee full safety

of products they make.


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Tunisian trade delegation commits to economic cooperation with Eastern Cape

The Eastern Cape Development Corporation (ECDC) says a 14 member business and trade delegation to the province led

by South African Ambassador to Tunisia, Mandla Hoyana, and Tunisian Ambassador to South Africa, Narjes Dridi, has resulted in various commitments to increase trade between the two countries.

The province welcomed the Tunisian trade and business delegation which was facilitated by official investment and trade promotion agency, the ECDC. The delegation was composed of businesses in a range of sectors such as food and beverages, aquaculture, textiles, agro processing, oil and gas, transport, automotive, ICT and metals.

The delegation has held wide-ranging discussions on matters of mutual interest between the Eastern Cape and Tunisia at the East London IDZ, as well as business to business discussions with the business chambers in East London and Port Elizabeth. “The mission came at the behest of Ambassador Hoyana for the Eastern Cape to organise a trade mission to explore investment and trade opportunities in the Eastern Cape.

"As the official investment and trade promotion agency of the province, ECDC took the administrative responsibility for arranging the mission," says ECDC Head of investment and trade promotion, Thabo Shenxane.

“Discussions between businesses, public sector players and the delegation revolved around information sharing and expertise, skills in the fields of customs regulations and incentives,

as well on the ease of doing business in the respective regions.

“We were able to explore with the Tunisians areas of common interest and cooperation as well as the exchange of human resources and skills.”

Shenxane says the location of Tunisia along the Mediterranean Sea creates another opportunity for our own ports to collaborate within the space of cargo movements particularly with the Port of Ngqurha. “By the same token, the Eastern Cape with all its natural endowments and agricultural opportunities, especially within the space of aquaculture and the ocean economy presents an opportunity for year-round market supply of products because of the alternate seasons between Tunisia and the Eastern Cape.

“We can grow crops alternately and this can be a basis for regional cooperation with the Eastern Cape providing access

to the SADC region for the Tunisians, whilst also providing access for the Eastern Cape in North Africa,” he says. The significance of this trade mission is that the Eastern Cape has now opened further channels to gain access to the North African market with Tunisia as the gateway. Currently, the Eastern Cape is a net importer of goods from Tunisia. “Tunisia is the largest source market for the Eastern Cape in the North African region and holds a share of 57,90% of total Eastern Cape imports in 2016. The Eastern Cape’s top export commodities to North Africa between 2012 and 2016 include wool, rubber, pharmaceuticals, plastics, live animals, fruit and automotives. “Going forward, ECDC is clear that business in the Eastern Cape should grab the opportunities it continues to present in the form of investor and trade facilitation, by opening up their locations as centres of investor attraction,” Shenxane explains.

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The Tunisian delegation with Eastern Cape officials


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International trade exchange rates

There are universally three international exchange rates used in countries around the world. The three exchange rates

are, Commercial Rates, Customs Rates and a Carrier Rates.

Commercial Exchange RatesCommercial Exchange Rates are the exchange rates used between traders and their banks. For exports, when a foreign currency comes into the seller’s bank account, the seller then has 30 days to sell that currency to their bank.

If they are not in a hurry to use that money, then they are free to speculate for 30 days, hoping the exchange rates will turn more in their favour. The seller is hoping that the local currency will become weaker so that the foreign currency would turn into more local currency than what was expected.

The seller can also “insure” or “fix” the exchange rate with the bank for some future period for when they think the foreign currency would come in. That insurance is called "Forward Cover". This, for a cost, gives the seller some peace of mind on a future locked value. For imports, when the invoice in a foreign currency is due to be paid, the

buyer would have to instruct their bank to pay the invoice, and the bank then buys that currency that day (spot rate).

The buyer is hoping that when the invoice is due, that the exchange rate would become stronger so that the bank will take less local currency from their bank account to pay for the foreign currency.

The buyer, like the seller, can also ‘insure’ or ‘fix’ the exchange rate with their bank for a future payment to be made.

Customs Exchange Rates.Customs Exchange Rates are set by Customs themselves and look different as to how we see them in the media (e.g 0,08 R/$, means one rand would have a value of only 8 US cents).

The governments take their own currency as a value of one against all other currencies and they could set this daily, weekly or over a fortnight, depending on the country’s system.

If the Customs Exchange Rate shows a zero in front of the decimal point, then the foreign currency on your invoice is stronger than your local currency; our “one” currency can thus buy less than their ‘one’ of the currency on the invoice.

If the exchange rate shows a number in

front of the decimal point, for example

10,0 Japanese yen, then the foreign

currency on your invoice is weaker than

your local currency, thus our "one"

currency is valued more than one, in this

example, one rand has the value

of 10 yen.

The date that the cargo is loaded onto

the carrier would determine the

Customs Exchange Rate to be used as

quoted by the government for that day

or period.

Carrier Exchange Rates

Carrier Exchange Rates are set by the

carriers themselves, for when you want

to pay them in a currency other than

what they quoted you for their services.

They could charge you a CAF (Currency

Adjustment Factor) for when the quoted

currency becomes weaker between the

time they quoted you and the time that

you paid for the service.

This does not happen when you pay the

freight upfront, it may only be charged if

the freight is going to be paid at

destination, which would be at a later

date than when quoted.

Jim Merrington from MBA Exit weighs in on the different international exchange rates used around the world.


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Light in the export tunnel for Hong Kong

Nicholas Kwan, Director of Research for the Hong Kong Trade Development Council (HKTDC), says the latest

HKTDC Export Index rebounded strongly to 47,1 in the first quarter of 2017, from 33,7 in the fourth quarter of 2016

In its latest findings, the Hong Kong Trade Development Council’s Export Index for the first quarter of 2017, rose to 47,1, an increase of 13,4 from the fourth quarter of 2016, marking the biggest jump in recent years, although it remains below the watershed mark of 50.

“Despite the still challenging global trade environment, export confidence is on the mend,” says Kwan, who forecasts export volume to increase 0,5 per cent and export value to remain flat for the year.

“Overall, exporters have been much less pessimistic with regard to their likely export performance over the short-term, yet the reading below 50 might still indicate sluggish export performance.”

The Export Index gauges exporter confidence, with a reading below 50 indicating a pessimistic sentiment during the quarter and signalling a contraction in Hong Kong exports over the short-term.

Dickson Ho, HKTDC Principal Economist (Asian and Emerging Markets), says that India enjoys many advantages as an alternative production base, including relatively low taxes, cheaper labour costs, growing labour productivity, and well-developed logistics infrastructure.

The figures reflected positive

changes in export sentiment for

major industries, with indices

for machinery, electronics, toys,

jewellery and timepieces recording

a moderate increase.

The best-performing industry, the

machinery sector, reported the highest

reading of 50, a rise of 15,1 from the

previous quarter. All other industries

reported stronger readings, but

remained in negative territory, with

significant gains seen for toys (48,3),

electronics (48,2), jewellery (45,1) and

timepieces (41,7).

“The clothing sector index rebounded

to 38 for 1Q17, but remained the

most pessimistic among the major

industries,” says Kwan.

Special Focus


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Credit Guarantee experienceCover is considered on a case-by-case basisRecent political highlights•Opposition parties are fragmented,

President Yoweri Kaguta Museveni assumed position since 26 January 1986. Vice President Edward Ssekandi took office since 24 May 2011. The rule of Museveni has brought relative stability and economic growth to Uganda, but adopts an authoritarian stance. A constitutional referendum in 2005 cancelled a 19-year ban on multi-party politics and lifted presidential term limits.

•Over Uganda’s security cloud, is the longest search tracking the LRA (The Lord's Resistance Army) and Joseph Kony, who has been indicted by the Hague-based International Criminal Court for their brutality and kidnapping children for use as fighters and sex slaves. The Ugandan military said it has begun withdrawing troops from Central African Republic where it had been pursuing rebel leader Kony and his army, saying it has accomplished its mission - although Kony remains at large.

Recent economic highlights•Almost 80% of Ethiopia’s population is

Uganda’s economy remains predominantly agricultural as agriculture is the most important sector of the economy, employing one third of the work force. Coffee accounting for the bulk of export revenues. Also dependent on a small industrial sector that is dependent on imported inputs like oil and equipment. Overall productivity is hampered by a number of supply-side constraints, including underinvestment in an agricultural sector that continues to rely on rudimentary technology. Industrial

growth is impeded by high-costs due to poor infrastructure, low levels of private investment, and the depreciation of the Ugandan shilling.

•According to Dun & Bradstreets (D&B)’ core outlook report for the country; there’s an anticipated substantial foreign investment in the oil sector and supporting infrastructure over the next three to five years. Uganda could benefit from planned road, rail and port expansion projects across the East African Community. On the negative span of the outlook, infrastructure deficiencies and reliance on congested logistics routes to East African ports currently undermine international connectivity. Also the business environment suffers from regulatory uncertainty, widespread corruption and poor governance (including policy development and implementation). Under the country’s key development is a pipeline for major infrastructure projects which will boost construction activity and related supply chains in the short- to medium-term. Exploration and production licences have been issued to international oil companies, and plans are under way to construct an oil export pipeline from Ugandan oil fields to Tanga port in Tanzania. The political environment together with the market environment has had a neutral impact on the outlook. The credit environment according to D&B has had a positive impact on the total outlook.

•On the positive spin of things, the Ugandan economy is proving resilient and growing fairly quickly. The authorities are trying to maintain momentum by easing monetary policy, expanding fiscal policy, and attracting foreign investment. Construction sector activity and related supply

chains will be a major driver of economic growth and business opportunities in the short- to medium-term as a range of large infrastructure projects are rolled out. Also, the government aims to develop new crude oil production facilities, construct an oil pipeline and develop an oil refinery to boost oil exports from new discoveries during the 2020s. The IMF's (International Monetary Fund) January review of Uganda gave a fairly upbeat assessment of expected economic performance; but it also noted some business sector shortcomings that need addressing, including bureaucratic inefficiency and poor trade facilitation. The government aims to improve tax revenue compliance and collection, and is slowly addressing land ownership/leasing issues. But one potential threat is tighter credit conditions emerging in China, which could stifle some foreign capital inflows to Uganda and delay development projects.

•As a means of business continuity, Uganda is considering the development of a transport system for bulk petroleum products over the lake that would bypass part of the congested road networks that link to regional markets and East African seaports.

•Gross Domestic Product expanded 1.4% year-on-year (y/y) in the last three months of 2016, slowing from a 2% rise in the previous quarter. IHS projects Uganda's economy to grow 5.4% in 2017 while facing significant external risks. Growth should see some impetus from a mild rebound in private-sector credit growth and infrastructure investment in the energy sector.

•Consumer prices increased 6.4% y/y

UGANDA

Credit Guarantee Insurance Corporation of Africa Limited

Credit Guarantee House, 31 Dover Street, Randburg, 2194, PO Box 125,

Randburg, 2125, Tel: 011 889 7000, Fax: 011 886 1027,

Email: [email protected]

Credit Guarantee country profile


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Source: IMF DataMapper

Key Indicators 2015 2016 2017 2018

GDP 5.0 5.3 5.7 5.9

Inflation(Average consumer price) 5.8 6.7 5.9 5.0

Volume of imports of goods and services 13.9 10.5 7.2 7.9

Volume of exports of goods and services 7.3 14.3 9.9 11.3

General government revenue (GDP%) 15.1 15.9 15.6 15.7

General government total expenditure (GDP%) 18.0 20.4 19.8 20.5

Current account balance (GDP%) -8.9 -8.4 -8.5 -9.0

Latest trade developments

Economic Indicators

in March of 2017, following 6.7% in the previous month. Headline inflation should remain around 5.7% in 2017 following significant headwinds, according to the IHS forecast.

•The Bank of Uganda (BOU) removed UGX530 billion from the market on 22 February 2017 via repurchase agreements, which has led to excess liquidity moderately supporting the shilling. The research group forecasts the Ugandan shilling to trade at UGX3,728/USD1.00 by December 2017.

•Government expenditure will mainly be driven by scaled-up public infrastructure investments. However, expects expenditure levels to settle down in fiscal year 2017/18 compared with the previous fiscal year.

•Uganda is ranked 115 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Business confidence increased to 55.2 in March of 2017 from an upwardly revised 54.9 in February.

•Hundreds of traders in Uganda’s capital are reported protesting against what they call unfair competition from Chinese investors operating retail businesses. The Kampala Mayor,

Erias Lukwago, is reported to have called on the government to protect local traders to prevent the escalation of the protest into xenophobia attacks against foreign traders.

•Major exports: coffee, fish and fish products, tea, cotton, flowers, horticultural products, gold.

•Major imports: capital equipment, vehicles, petroleum, medical supplies, cereals.

•Main trading partners: Rwanda, Kenya, UAE, India, Democratic Republic of the Congo, China, Italy

•SA exports to Uganda totalled

R1.6bn in 2011, R1.5bn in 2012, R1.8bn in 2013, R1.8bn in 2014, R1.7bn in 2015, R1.8bn in 2016 and R255.4m in January-February 2017.

•SA imports from Uganda totalled R50.3m in 2011, R79.2m in 2012, R51.2m in 2013, R98m in 2014, R98.3m in 2015, R78.4m in 2016 and R17.7m in January-February 2017.

Researched and compiled by Cindy Motloung, economic services – Credit Guarantee Insurance

SA EXPORTS TO UGANDA (TOP 5)

2015 2016

Machinery R 329 292 129 Photographic & medical equipment R 425 267 305

Vehicles, aircraft, vessels R 322 609 221 Machinery R 316 989 377

Chemicals R 300 824 143 Vehicles, aircraft, vessels R 282 069 328

Photographic & medical equipment R209 291 472 Chemicals R 190 269 452

Prepared foodstuffs R 131 382 440 Wood pulp & paper R 156 270 527

Country ratingS/T business cycle indicatop

S/T political indicator

Debt recovery

3C Suggested use of a collection agent


Country rating key - political risks: 1 = low, 2 = medium, 3 = highCommercial risks: A = low, B = medium, C = high


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Credit Guarantee experienceCover is considered on a case-by-case basis

Recent political highlightsThe UK is a key actor in international politics, while cultural, historical and ideological links make it a natural ally of the US. The UK is a modern, well-established democracy. The political/insecurity risk in the country depicts by-elections strengthening the government. Two by-elections on 23 February strengthened the position of Prime Minister Theresa May as her Conservative Party won the Copeland constituency. In the unlikely case her largely pro-EU parliamentary group opposes her hard Brexit stance, snap elections could become an option. That said, analysts’ core scenario is that the parliamentary term will end as scheduled in 2020, one year after Brexit is completed.The UK is a stable democracy, and a well-entrenched rule of law guarantees the security of contracts, liberalised markets, and a relatively strict competition policy regime. Uncertainty stemming from the Brexit referendum is clouding the country's medium- to long-term outlook. Infrastructure for land transport is congested and unreliable by European standards.According to the IHS report, policy-making in the coming months will be disrupted by Brexit-related uncertainty and legislative procedures are likely to be slowed down, in particular until Prime Minister May and her cabinet start official negotiations with the EU. The UK's decision to leave the EU creates high levels of political and economic uncertainty while the UK renegotiates its relationship with the bloc over the coming years. This dampens growth and investment prospects while affecting trade relations, the free movement of

people and labour, and collaboration on a vast array of political and security challenges. There is a high risk of terrorist attacks by radicalised lone actors or small cells sympathising with the Islamic State and other militant groups.

Recent economic highlights•The UK's long-term economic potential

exceeds that of most other European economies. The country, a leading trading power and financial center, is the third largest economy in Europe after Germany and France. Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs with less than 2% of the labour force. The UK has large coal, natural gas, and oil resources, but its oil and natural gas reserves are declining; the UK has been a net importer of energy since 2005. Services, particularly banking, insurance, and business services, are key drivers of British GDP growth. Manufacturing has declined in importance but still accounts for about 10% of economic output.

•As it is an economy dominated by the services sector, it is highly developed, liberalised and globally integrated. Financial services companies concentrated in London, one of the foremost global financial centres, have long been a strong driver of economic growth, helping the UK to outperform most other G7 economies in the ten years to 2007. However, the 2008 international financial crisis turned the reliance on banking and related services into a vulnerability, now emphasised by the looming British departure from the EU.

•According to the Global Competitiveness Report 2016-17, with regards to the trade and commercial competitiveness of the

country, the UK is the world's seventh most competitive economy. The country scores particularly well in the technological readiness sub-index (3rd), as well as in labour market efficiency (5th) and business sophistication (7th). Weaknesses are to be found in the fields of health and primary education (17th), higher education and training (20th) and - particularly - in the macroeconomic environment (85th, although this is up from 108th in the previous report). According to survey respondents, the biggest obstacles for doing business in the UK are tax regulations, inadequate provision of infrastructure, and tax rates. However, with the survey having been completed before the Brexit vote, Dun & Bradstreet (D&B) expects uncertainty about the UK's relations with the EU to become the most pressing issue.

•IHS believes the UK is starting to show signs of slowdown after a resilient second-half performance in 2016. Its services output again drove growth in the fourth quarter, expanding 0.8% q/q and 2.9% y/y. All services sectors achieved growth, particularly consumer-facing ones. Industrial production expanded 0.4% q/q in the fourth quarter after dropping 0.4% q/q in the third quarter; it was up 1.9% y/y. Manufacturing output rebounded 1.2% q/q in the fourth quarter and was up 2.0% y/y after contracting 0.7% q/q in the third quarter. Industrial production was limited by a 6.9% q/q and 3.0% y/y drop in mining and quarrying activity. Construction output rose 1.0% q/q and 2.8% y/y in the fourth quarter after falling 0.3% q/q in the third quarter.

•UK real Gross Domestic Product (GDP) growth is seen slowing to 1.6% in 2017 and 1.2% in 2018. Consumer fundamentals will weaken during

UK

Credit Guarantee Insurance Corporation of Africa Limited

Credit Guarantee House, 31 Dover Street, Randburg, 2194, PO Box 125,

Randburg, 2125, Tel: 011 889 7000, Fax: 011 886 1027,

Email: [email protected]



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Source: IMF DataMapperSource: IMF DataMapper

Key Indicators 2014 2015 2016 2017 2018

GDP 2.9 2.2 1.9 2.2 2.2

Inflation 1.5 0.1 0.8 1.9 2.0

Volume of imports of goods and services 2.4 6.2 3.6 3.5 3.5

Volume of exports of goods and services 1.2 5.0 2.9 3.8 3.9

Unemployment rate (% of total labour force) 6.2 5.4 4.9 4.9 5.1

General government revenue (% of GDP) 35.4 35.7 36.5 36.7 36.7

General government total expenditure (% of GDP) 41.0 40.2 39.7 38.9 38.0

Current account balance (% of GDP) -5.1 -4.3 -4.3 -3.9 -3.6

Latest trade developments

Economic Indicators

2017, and business uncertainty and caution about investment and employment are expected to be heightened as the UK starts the process of leaving the EU. GDP growth held up well in the second half of 2016, primarily because consumers kept spending. Additionally, investment initially held up better than feared in the Brexit vote's immediate aftermath. Although investment softened in the fourth quarter, this was offset by markedly improved exports. GDP expanded 1.9% y/year in the fourth quarter of 2016, following a 2% expansion in the previous period and below the second estimate of 2%.

•Consumer price inflation will rise markedly further as sterling’s weakness increasingly feeds through; it is seen reaching 3.0% in late 2017 and peaking around 3.3% in early 2018. Consumer price inflation remained at 2.3% in March, which is the highest level since October 2013. It is up from 1.8% in January, 1.6% in December, 1.2% in November, and 0.9% in October. Inflation has been driven higher since October by sterling’s sharp weakening since the June 2016 Brexit vote increasingly feeding through to lift prices. Markedly higher oil prices compared with 2016 and firming food prices have also

exerted appreciable upward pressure on inflation.

•The Bank of England is prepared to tolerate the inflation overshoot, given likely prolonged economic uncertainty during the Brexit process. The bank rate is seen remaining at 0.25% through 2017–18. Brexit uncertainties and weaker growth will weigh on sterling; it is seen trading as low as USD1.11 in early 2018.

•The eurozone will enjoy stronger economy growth than previously thought this year and next, but face risks from uncertainty surrounding Donald Trump’s presidency and the UK’s negotiations to leave the European Union. The executive arm of the EU became the latest body to concede its predictions made shortly after the Brexit vote had been overly gloomy. After a stronger than expected close to 2016, it sees the UK economy growing 1.5% this year, compared with a forecast for just 1% growth made in November.

•The economy will grow faster than expected this year, by 2pc, according to the Office for Budget Responsibility. According to UK’s Budget 2017, under deficit, Public sector borrowing is expected to be lower for the current financial year, coming in at £51.7bn for 2016-17, well below the £68.2bn

pencilled in just four months ago. •Debt is now set to peak at 88.8pc of

GDP in 2017-18, a lower level than the 90.2pc that was predicted in the Autumn Statement. By 2021-22 the OBR (Office for Budget Responsibility) believes it will have fallen to 79.8pc of GDP. Unemployment will also be suppressed. Growth will weaken after 2017 on the new forecasts, and so the OBR expects unemployment to creep up from below 5pc currently to 5.1pc in 2018 and 5.2pc in 2019 and 2020, then down a touch to 5.1pc the following year. As a result the OBR now believes employment will rise every year to 32.5m people in 2021-22 - that is 200,000 more people than economists had predicted in November.

•Major exports: manufactured goods, fuels, chemicals; food, beverages, tobacco

•Major imports: manufactured goods, machinery, fuels; foodstuffs

•Main trading partners: US, Germany, Switzerland, China, France, Netherlands, Ireland.

•SA exports to UK totalled R27.5bn in 2012, R31.9bn in 2013, R37.7bn in 2014, R41.8bn in 2015, R46.5bn in 2016, R5.8bn in 2017 in Jan-February 2017.

•SA imports from UK totalled R28.9bn in 2012, R32.3bn in 2013, R35.5bn in 2014, R35bn in 2015, R31.9bn in 2016, R4.7bn in Jan-February 2017.

Researched and compiled by Cindy Motloung, economic services – Credit Guarantee Insurance

SA EXPORTS TO UK (TOP 5)

2014 2015

Precious Metal R 17,905,700,716 Precious Metal R 20,146,893,196

Vegetables R 6,198,488,294 Vehicles aircraft and vessels R 8,039,770,243

Vehicles aircraft and vessels R 5,580,005,051 Vegetables R 6,888,721,160

Machinery R 3,451,304,895 Machinery R 2,739,309,467

Prepared foodstuffs R 2,237,513,991 Prepared foodstuffs R 2,532,003,203

Country ratingS/T business cycle

indicatopS/T political

indicatorDebt recovery

1A Suggested use of a collection agent


Country rating key - political risks: 1 = low, 2 = medium, 3 = highCommercial risks: A = low, B = medium, C = high


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Close the gaps in perishable and cold storage insurance

JLT Marine perishables specialist, Bimesh Ugarchund, warns shippers and cold storage owners and operators of the

need to ensure there are no gaps in insurance protection whilst chilled or frozen goods are being stored, whether it is deliberate storage (intentional and generally medium to long term), or incidental to an export/import shipment (“in the normal course of transit” and generally short term).

“From a shipper’s perspective, the commonly used Institute Frozen Food Clauses (A) incepts cover from the time the goods are loaded into the conveyance at the freezing works or cold store, at the place named in your insurance agreement for the commencement of the transit,” says Ugarchund.

“In some instances, however, dependent on how the exporter buys the goods from the farmer, the exporter’s risk in the fruit could incept from the time the goods were loaded

at a farm or pack house (ie prior to the freezing works or cold store) into a tautliner or refrigerated truck for transit to an intermediate cold storage facility, where it is stored prior to being packed into a refrigerated container or vessel for export.

Per the clauses mentioned above, there would, in this instance, be no cover for the transit or the cold storage.”

In some situations, the exporter’s risk attaches from the time goods are delivered to the coldstore to be packed for export, but their marine cover, again per the "standard" clauses, only attaches when loading of the containers begins, hence no cover for the duration of cold storage.

“Exporters may at times feel that they can rely on the cold storage operator’s insurance arrangements, thinking they have adequate cover in place, should something go wrong while the goods are in store. This

might not necessarily be the case and very often the onus would be on the cargo owner to prove that the cold storage operator is at fault before such policies respond.

“Therefore, the exporter needs to ensure, firstly that their marine cargo insurers are aware of where and when the exporter’s risk in the goods attaches, and that their cover attaches accordingly and continues whilst being stored (whether in the normal course of transit or intentionally) for the full duration of such storage.

“The pertinent risks to insure at cold stores, in addition to the usual fire, and accidental damage etc, are temperature variations due to breakdown and or malfunction of the refrigeration equipment, or even goods being exposed to incorrect temperatures for whatever reason.

“In most instances, cold storage operators offer their services per limited liability contracts or standard

Finance & Insurance

Bimesh Ugarchund


StrapFinance & Insurance

trading conditions, and they cannot and should not be relied on to indemnify the cargo owner unless negligence, and in some instances gross negligence on the part of the warehouse can be proven. “Even then, the limits of liability accepted under these contracts will generally not extend to the full value of any cargo destroyed. This risk needs to be covered by the owner of the cargo.

“Often, the warehouseman’s legal liability cover, which the cold store operator should have in place may not be maintained, due to the cost of liability insurance, and this would be a dangerous decision on the part of the warehouse operator as the warehouseman’s liability cover should be viewed as a ‘policy of defence’ which provides the cold store operator with cover in the event that cargo owners or their insurers (under rights of subrogation) attempt to hold the operator liable for loss or damage to their goods.”

The intention of this cover is to defend the warehouse owners from such claims.

“In our experience, for the

warehouse owner or

operator, this type of cover

has proven invaluable where

large losses, which arise

through no fault of the

warehouse operator, have to

be defended as the policy

would pay the potentially

crippling legal fees required

to prove that the warehouse

operator is not liable,”

says Ugarchund.

“However, in the event that

he is liable, this policy would

compensate the warehouse

operator for any amount he

would have to pay the cargo

owner or their insurers

where they are liable.

“At JLT Marine we ensure

that risk is analysed properly

from both the cargo owner’s

and the logistics services

provider’s perspective, and

our wordings ensure the

widest possible cover. Our

cargo brokers and our legal

liability team have extensive

experience in both fields and

will ensure that the interests

of all parties are properly

catered for.”


StrapTransport & Logistics

Mitigating risks with video telematics

Modern video-based telematics will not only ensure reduced time to settle insurance claims,

but fleet owners can now increase driver productivity, reduce fuel theft and increase load frequency with faster turnaround times. A study by the US Department of Transport shows that video telematics can save fleet owners up to 20 % on fuel consumption, tyres, brakes and general maintenance. These hi-tech systems also help improve driver skills, resulting in increased driver safety and productivity. iCAM Video Telematics managing director, Gary Wels, says driver coaching can now be done by factual video evidence. “Not only does this ensure safer and more responsible driving, but it can also prove the innocence of drivers and reduce third party insurance claims. “By mitigating risks, fleet owners can ensure better incident management, reduce vehicle downtime and improve productivity. More importantly, factual visual evidence of an event means reduced theft and pilferage, reduced time to settle insurance claims and a decrease in accident claims,” he explains. iCAM Video Telematics offers a 4-camera Vehicle Video System that allows fleet owners to stream live video from a moving vehicle via a

cellular signal. This enhancement provides various viewing options for customers including event-based footage and historical footage. The iCAM 852 is a locally produced video streaming and fleet management product, designed for safety and driving analysis through video technology. It was designed from the ground up, with scalability in mind in order to support any sized fleet. Wels says fleet owners can now manage vehicles and administer the entire system over the air via a web-based secure login. “The solution includes video embedded with mapping location, speed, date, time, and back-end systems.” Video recording on all events or triggered incidents such as speeding, no-go zones, panic button, tampering and accelerometer are tracked and uploaded to the secure server for investigation and viewing. Other triggers could include cabin doors, driver fatigue system, fuel probes and battery disconnection. The iCAM 852 offers peace of mind and provides factual evidence. It has real-time live capability on 3G streaming, the GPS accuracy and tracking data together with G Force measurement provides highly reliable impact speeds and force to prevent any challenges to the validity of data. Fleet owners can choose to receive immediate email alerts upon

exceptions or triggers and one has direct contact with the driver via auto answer mic and speaker. The solution includes detailed reporting, a huge benefit for fleet owners, drivers, customers and insurance partners. iCAM Video Telematics also offers managed services via its call centre. Recovery services include panic alerts for hijacking or any other emergency or a vehicle battery disconnect. The call centre will contact the primary contact to get instruction on what actions to perform. The call centre can also perform event and video monitoring where customers nominate video events to be monitored such as speeding, passenger door, no-go zone and also provides instruction for each event. “We also offer a managed incident solution that includes recovery, video and event monitoring and full incident management. Customer sets rules in line with insurance and business policies and our call centre actions these rules. Rules can be set per incident type or standardised across incident types,” he says. “Standard cost for the service with additional services charged by service providers such as armed protection, hazmat clean-up or vehicle storage. An audit trail is also available on all actions performed by our call centre including date and time stamp,” he concludes.


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StrapTransport & Logistics

Truck industry shows growth despite economic slump

The South African truck market showed ongoing resilience despite recent political and economic events. However, the

effect of the rating agency downgrades of South Africa to sub-investment grade, will determine if the small growth built by the industry so far this year will remain or be eroded.

“The next few months will be critical in determining the path we as a country will follow and leadership in all spheres of business, but mostly in government, will be the key,” says Gert Swanepoel, managing director of UD Trucks Southern Africa.

“As the adage goes ‘cometh the hour, cometh the man’ - or woman - will now be more relevant than ever. A consolidated road freight industry is

therefore needed to drive reform and advancement in the sector, as well as in the larger economy.”

According to the latest results released by the National Association of Automobile Manufacturers of South Africa (Naamsa), Associated Motor Holdings (AMH) and Amalgamated Automobile Distributors (AAD), the total truck market increased by a significant 16,9% month-on-month, to record 2 618 new truck sales.

This brings the market’s year-to-date total to 6 416 new trucks for the first quarter of 2017, a 3,9% increase over the same period last year.

During the first three months of the year, sales in the Medium Commercial Vehicle segment grew by 3,3% to

1 993 units compared to the first

quarter of 2016. Sales in the Heavy

Commercial Vehicle segment

increased by 11,9% to 1 355 units,

while the Extra Heavy Commercial

segment grew by 2,2% to 2 837 units.

Only the Bus segment remained in the

red with a 10,5% decline in sales, to

a total of 231 new units sold so far

this year.

“Even amidst all the turbulence, we

believe that the dust will settle and the

steady slog towards growth in the

truck industry will begin once more,”

says Swanepoel. “We still expect the

South African commercial vehicle

market to grow marginally by an

estimated 3% during 2017, to around

28 998 units.”


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StrapWarehousing

The growth of online retailer Amazon has had a huge effect on the balance between supply and demand in available UK

warehouse space, delegates at the recent Multimodal event in Birmingham have heard. According to Mark Thornton, Marketing Director of Omnichannel and e-commerce technology provider Maginus, Amazon currently own 13 fulfilment centres and 22 delivery stations in the UK, and expects to be complemented by an additional one million square feet of warehousing later this year. “In 2016, 25% of the available warehouse space in the entire country was taken up by Amazon, which led to a 71% reduction in total available space in the country, and that has had an obvious effect on the rest of the market,” he said. “Rents have subsequently increased for everyone and, in some places, have gone up by 20%.” The increasing demand for new warehouses from Amazon has inevitably led to a steep rise in demand for warehouse workers, with a consequent drain on the availability of labour. “The labour pool is one of the big issues,” admitted John Eynon, Managing Director of Southampton-headquartered Import Services. “Although we had an Amazon warehouse open across the road from us that had no effect, it did affect staff morale.” Amazon does, however, still remain one of Import Services’ largest

customers. Last year alone, it shipped goods to 51 Amazon distribution centres in the UK and continental Europe. Asked what it is like working for Amazon, Eynon responded: “Amazon can be difficult to talk to, but once you are inside the skin of the system it isn’t such a bad place. “To be honest, I don’t find them more or less difficult than any other retailer. “It is also important to remember that Amazon is not the biggest retailer by any means. It is still only half the size of Walmart. But what it has done is raise the expectation of the consumer, although there are still plenty of opportunities for other retailers.” There is also an expectation of the 3PLs working for the e-commerce giant to emulate the same high service standards. Eynon was dismissive of the possible challenges posed by disruptive

technologies such as Uber Rush, which is an on-demand delivery service that connects shared economy couriers with businesses and individuals who need to schedule on-demand pick-ups and deliveries. “It’s very easy to get a cheap courier – what you need is a good quality point of delivery, and I am not sure I would trust Uber with that,” he said. Enyon was part of a panel chaired by the Chief Executive Officer of the UK Warehouse Association (UKWA), Peter Ward, at Multimodal.

Multimodal is the UK and Ireland's leading freight transport and logistics exhibition, which also features a series of topical seminars and master classes, and hosts a Shippers' Village, giving freight buyers a private space to meet logistics suppliers. The supply chain show, in its 10th year, was free-to-attend and Multimodal took place at the Birmingham NEC from 4 to 6 April 2017.

Growth of online retailers tip balance for UK logistics providers


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StrapFreight Forwarding

As Asian forwarding and logistic markets continue to show strong growth, a new Forwarding Index has been

launched by two leading consultants to measure current demand and forward sentiment. The APAC Forwarding Index is being developed by freight journalist and consultant Mike King, and Cathy Roberson, an industry veteran who has been consulting on logistics markets for two decades. “Using the input gathered from respondents including shippers, forwarders, 3PL executives, agents, shipping lines and, of course, forwarders, we will build the APAC Forwarding Confidence Index,” said Roberson. “This will serve as a vital and much-needed industry guide to Asia’s forwarding markets, and an economic bellwether for global trade analysis.” The full Index will be published in the coming months with methodology and analysis provided by King and Roberson,

the founders of, respectively, Mike King & Associates and Logistics Trends & Insights LLC. The survey is open to anyone with insight or business linked to key trade lanes to and from Asia used by forwarders and other third parties.

“The survey takes less than five minutes and will become the essential building block for our new APAC Forwarding Confidence Index which will help build a clear picture of APAC forwarding and freight markets by trade lane and mode, both now and looking forward,” said King. According to Roberson, the Asia-Pacific forwarding market continues to be a region of growth. “While volumes are high, competition is viewed not only as highly fragmented but fierce," she said.

"As a result, profitability remains elusive for some players. In addition, the market is changing as the region evolves from an export dependent economy to a balanced one.

“No longer are forwarders focused only

on air and ocean freight but also on

intra-Asia services including rail and

trucking as supply chains between

countries become more entwined.”

Roberson said that international air and

ocean market slumps in recent years

due to overcapacity had been reversed

towards the latter part of 2016.

“For ocean freight, the dust refused to

settle as rates fell to historic lows in

2016 but now are creeping upwards as

unprecedented consolidation, new

alliances and the bankruptcy

of Hanjin serve as a wake-up call for a

market long in need of right-sizing

capacity and evening out severe rate

fluctuations,” she added.

“How the Asia-Pacific freight market

performs affects the entire world. For

forwarders, Asia-Pacific is seen as a

growth opportunity while others view

the region as an emerging global

economic powerhouse.”

Introducing: the new APAC Forwarding Index Help build a better picture of freight demand on major trade lanes to and from Asia


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Regular followers of market trends know that year-over-year (YoY) comparisons for the early months of the year

should be treated with caution, such is the influence of the timing of the Chinese New Year on the world's air cargo flows. Looking therefore at January and February combined, the start of 2017 has been promising with a YoY growth of 6,3% in kilograms and 7,4% in DTK's (direct ton kilometres, the measure combining weight with the geographical distance between origin and destination of shipments).

The three largest regions grew more, both in outgoing and in incoming kilograms: Asia Pacific +11%, North America +7% and Europe +6,5%.

Allowing for the fact that we had one day less (as 2016 was a leap year), the worldwide growth could be said to be even higher, i.e 8% in kilograms and 9,1% in DTKs. In other words, the strong YoY growth we already saw for Q4 2016, continued unabated in the new year. One underlying factor may well have been the changed business pattern around the Chinese New Year. As a rule, the volumes in the "week after" drop

considerably compared to the "last week before", not only from Asia Pacific but also worldwide.

Last year, business from Asia Pacific dropped to a level of 43% of the top-week (worldwide to 76%). This year, not only was the drop smaller (to 51% from Asia Pacific, and to 83% worldwide), but business also returned more quickly to normal levels after the "week after". Are these signs a harbinger of good times to come? Air cargo seems to ride the wave of an improving world economy, making for a good outlook for this year. Yet, we should caution against expectations of the present YoY growth percentages continuing. After all, the impressive growth percentages of the past half year were possible because of the relative weakness in the equivalent period one year earlier. Worldwide yield (in USD) in the period Jan/Feb 2017 lost 5,9% to the last two months of 2016: a year ago, the comparable drop was 8,3%. Viewing Jan/Feb 2017 against Jan/Feb 2016, we see a yield drop of 2,6% in USD-terms, but a 0,6 % yield rise, when measured in EUR. So, the good news is that Jan/Feb revenues increased YoY.

However, seen against the backdrop of jet fuel prices rising strongly YoY, margins for airlines continued to be fragile.

Forwarders and product categories

This month, we take a brief look at the

position of the world's top-20

forwarders in 2016. With a worldwide

share in general cargo of 46%, they

are strongest in the air cargo markets

of Asia Pacific, Europe and North

America. In Africa, MESA and Latin

America, their shares were way below,

with 20%, 25% and 28% respectively.

The top-20's share in all specialist

products worldwide remained at 36%

only, ranging from an 8% share in live

animals and valuables to a 66% share

in pharmaceuticals.

We see very clear regional differences,

underscoring the existing

specialisation among forwarders. In

the Live Animals business from North

America, the largest market of this

kind, the top-20's share is 5% only. In

perishables from Africa, it is 18%.

On the other hand, the big guns

dominate the largest pharmaceuticals

market Europe, with a share of 75%,

and the market in vulnerables (mostly

electronics) from Asia Pacific, with a

share of 64%.

Source: WorldACD Market Data

(worldacd.com)

Air cargo growth outpacing trade growth: upward trend continues

Air freight


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StrapPorts & Shipping

Little more than 2 1/2 years from now, the global fleet of merchant ships will have to reduce drastically how much

sulfur their engines belch into the atmosphere. While that will do good things like diminishing the threat of acid rain and helping asthma sufferers there’s a $60 billion sting in the tail.

That’s how much more seaborne vessels may be forced to spend each year on higher-quality fuel to comply with new emission rules that start in 2020, consultant Wood Mackenzie Ltd estimates.

For an industry that hauls everything from oil to steel to coal, higher operating costs will compound the financial strain on cash-strapped ship owners, whose vessels earn an average of 70 percent less than they did just before the 2008-09 recession.

The consequences may reach beyond the 90 000-ship merchant fleet, which handles about 90 % of global trade. Possible confusion over which carriers comply with the new rules could lead to some vessels being barred from making deliveries, which would disrupt shipments, according to BIMCO, a group representing ship owners and operators in about 130 countries.

Oil refiners still don’t have enough capacity to supply all the fuel that would

be needed, and few vessels have embarked on costly retrofits.

“There will be an absolute chaos,” said Lars Robert Pedersen, the deputy secretary general of Denmark-based BIMCO. “We are talking about 2,5 million to 4 million barrels a day of fuel oil to basically shift into a different product.”

Merchant ships around the world are required to cut the amount of sulfur emitted under rules approved in October by the International Maritime Organisation, a UN agency that sets industry standards for safety, security and the environment.

As well as contributing to acid rain, sulfur, combined with oxygen, can form fine sulfate particles that can be inhaled by humans and may cause asthma and bronchitis, according to the U.S. Environmental Protection Agency.

There are two main ways to comply: vessel engines are fitted with scrubbers that would eliminate the pollutant, or oil refiners will have to make lower-emission fuels. The limit on sulfur content will drop to 0,5 percent from 3,5 %.

Not enoughSo far, neither the refining industry nor shipping is doing anywhere near enough

for owners to achieve compliance in 2020, according Iain Mowat, a senior analyst at Wood Mackenzie.

“Ship owners are reluctant to install scrubbers to continue using the same oil because of uncertainties and lack of funding,” Mowat said. “And most refineries won’t invest to convert heavy fuel because that will cost more than $1 billion and take about five years to complete.”

Just 2,2 % of the fleet will have scrubbers installed by 2020 that would allow them to continue using current fuels, estimates the International Energy Agency in Paris, an adviser to 29 nations.

“The compliant technical options are still very immature, and it is hard for us to see them as a real compliance option for our fleet,” said Aslak Ross, head of marine standards at Maersk Line, the world’s biggest container shipping company. For Maersk alone, the additional fuel cost will amount to billions of dollars annually, he said.

$4 million per engineMost ships will switch to using a mix of lower-sulfur fuel oil or more-expensive middle distillates, according to Jan Christensen, head of global bunker operations at Bomin Bunker Holding, a Hamburg, Germany-based fuels supplier.

Global shipping fleet braces for chaos of $60 billion fuel shockby Firat Kayakiran


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The scrubbing technology could cost as much as $4 million per engine, depending on its size, said Nick Confuorto, president and chief operating officer at scrubber supplier CR Ocean Engineering. Retrofitting engines might be worth doing, possibly paying off in two years, because the price of compliant fuel probably will be three times higher than what ships currently burn, he said.

“While the world’s largest owners are already reserving spaces for refits, smaller operators are taking a more wait-and-see approach,” said Neil Carmichael, chief executive officer at Pacific Green Technologies.

Wood Mackenzie estimates about 70 % compliance globally by 2020 and full compliance by 2025 after a transition period.

Tough marketsMerchant ships earned an average of about $9 800 a day this year, according to data from Clarkson Research

Services Ltd, part of the world’s biggest

shipbroker.

Ten years ago, they were earning about

$34 000. In the industry’s three main

markets - container shipping, dry-bulk

cargo transportation, and oil tankers -

there’s been evidence of overcapacity

and depressed rates over the past

several years.

“Those tough markets are making it

harder for owners to secure investment

and finance they need to comply, which

means the IMO and its member states will probably permit some kind of transition period when the 2020 rules begin,” says Simon Bennett, policy director and external relations at the International Chamber of Shipping.

“If there were no flexibility on January 1 and owners couldn’t get fuel, then that would have an impact on world trade,” Bennett said. “Either way, this will have a profound impact on the economics of shipping.

•Source:Bloomberg

Ports & Shipping


StrapPorts & Shipping

1,1 million USD maintenance dredging campaign under way at Port of Cape Town

Transnet National Ports Authority (TNPA)’s Dredging Services division has embarked on a R15 million (US$ 1,1 million)

maintenance dredging campaign at the Port of Cape Town to restore the design depths inside Duncan dock.

The maintenance campaign, which began on 8 March 2017, was scheduled for completion by the end of April 2017. The main objective of the dredging campaign is to ensure the Port of Cape Town provides safe navigational channels and berthing facilities for shipping by restoring the original design depths.

Two dredging vessels, the Isandlwana, a trailing suction hopper dredger and the Italeni grab hopper dredger have been mobilised by TNPA Dredging Services for this purpose.

Multi-beam bathymetric surveys are conducted at regular intervals throughout the campaign that will ensure all areas within Duncan Dock are restored to their original design depths.Dredging is specialised underwater

excavation that helps to keep ports and

harbours safe and navigable and is a

critical aspect of port maintenance.

The Isandlwana, which has a 4 200 m³

hopper capacity, was scheduled to

remove approximately 70 000 m³ of

material from the sea bed before the

end of April. Spoil is pumped into the

hopper and can be offloaded by discharging through 10 conical bottom valves.

Pumping ashore is also possible by means of either a floating pipeline, a side discharge mechanism or by "rainbowing", where the dredging vessel discharges material that has been claimed from the ocean floor in a high arc to build a land mass elsewhere, such as during nourishment of beaches, to prevent erosion along the coasts or to reclaim land.

TNPA’s fleet renewal programme has boosted the dredging division’s capacity to aid the removal of approximately four million cubic metres of excess material from the seabed every year at South Africa’s ports.

With the most modern equipment available in the specialised service industry, Dredging Services is able to not only meet the needs of the South African port system, but the needs of southern Africa, helping other African countries grow their economies.


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