Andrew Pike, Head of Ports, Transport and Logistics, says that it is almost impossible to quantify accurately what the true cost will be, the impact will be felt throughout the economy. Photo by Nqobile Mbonambi.
As the Transnet strike runs into its second week and its impact starts to bite, analysts are predicting that the cost to the economy will run into billions of rands per day.
The SA Transport and Allied Workers Union (Satawu) says the Transnet workers’ strike will continue this week as no resolutions were reached in talks at the Transnet Bargaining Council last week.
Transnet offered a 4.5% across-the-board increase in the current year, which would have been implemented from October 1, 2022. This would have been followed by a 5.3% increase in the 2023/24 financial year.
The offer also included a 4.5% increase in the medical aid allowance in 2022/23, which would be adjusted in line with the across-the-board increase in the subsequent two years.
Satawu said the proposal was below inflation, and therefore, it was rejected.
“Our members feel that accepting anything below inflation will be to the detriment of their livelihoods. They will accept anything above inflation.”
Satawu general-secretary Jack Mazibuko said the union also felt accepting a retrenchment clause suggested that they would be deviating from their mandate to advance workers' interests.
“Transnet would also be deflecting from its objective to deliver public good, as opposed to the accumulation of profits at the expense of workers,” said Mazibuko.
Andrew Pike, Head of Ports, Transport and Logistics, says that it is almost impossible to quantify accurately what the true cost will be, the impact will be felt throughout the economy.
The particular areas in which the strike will hurt, he says, include the following:
Supply Chain
Importers and exporters have supplier contracts to fulfil or obligations to meet, both to their own suppliers and their own customers and distributors. Some of those supply contracts are time sensitive, meaning that goods which are seasonal, such as fruit, won’t get to market in time in many instances. It is even conceivable that goods may not reach stores in time for the December holidays if the strike continues for much longer.
For exporters, they run the risk of letters of credit expiring, orders being cancelled and an inability to catch up on lost sales.
Port Congestion
As containers begin to stack up and cannot be evacuated from the container terminals, potentially huge container storage costs are starting to accrue. There might be some relief to be had given that Transnet Port Terminals (TPT) has declared force majeure.
If they say they are unable to perform in the terminals, they can hardly expect customers to pay the high terminal storage costs associated with delayed evacuation of containers from the terminals. Nonetheless, loss of terminal handling and storage revenues will hurt Transnet itself.
More seriously, with reports of various TPT terminals being “saturated” with cargo, the back-up of goods at terminals such as cars, bulk products and containers means that, once TPT is able to start operating again, it will take a long time to clear the backlog.
Logistics experts use a rule of thumb that one day of loss of port productivity requires up to ten days to recover.
In view of the lack of access to the ports and the inability of trucks to collect import cargoes and carry them back to the hinterland, trucking has all but ceased as far as Transnet terminals are concerned.
As most truck drivers are paid per load that they carry, there are thousands of truck drivers whose livelihoods are under threat and many already being placed on furlough.
Likewise, the fleet operators themselves have major financial commitments on their assets which they are unable to meet if their vehicles are not working.
Transnet Freight Rail (TFR)
TFR is responsible for moving some of the container volumes to and from the coastal ports.
As TFR have also declared force majeure, one may assume that there are no containers moving by rail.
More seriously, TFR is the sole rail provider for transporting bulk cargoes such as coal, iron ore, chrome and manganese from the hinterland to the ports.
These are strategic export goods which yield billions of rands for the country in foreign earnings.
For each day lost, mining companies are losing massive amounts of money, and there is no assurance that they will ever catch up on these losses.
They are also operating in a market where the commodity prices are very volatile.
The falling share prices of several major companies, such as Kumba, Exxaro and Thungela Resources, are reflecting the loss of confidence by the markets.
Shipping
On the shipping front, whether you are an importer or an exporter, delays to ships will usually result in a liability for significant amounts of demurrage (penalties for delaying ships).
By way of example, ship demurrage can cost charterers anything from $20,000 to $50,000 per day or more, so each hour lost has to be paid by whoever contracted directly with the ship.
Typically, where a ship has been chartered, and there is a potential for payment of demurrage, this will be passed along the supply chain through the trading contracts.
Ultimately, demurrage will get paid by the consumer. At present, we see upwards of thirty vessels waiting outside each of Durban and Richards Bay (fewer ships outside the smaller ports), but every ship which is not working is not earning, so whoever is contractually responsible for the delay will pay for that ship. Transnet will never be responsible for any ship demurrage, so the liability will ultimately fall on the private sector and the consumer.
During the 2010 Transnet strike, ships on liner services, in particular, starting levying an amount per container carried to compensate them for the strike. This levy varied between $50 and $200 per container.
As shipping lines operate in United States Dollars, and if they decide to implement a similar strike levy on this occasion, those amounts in rand terms will be significantly higher today than they were twelve years. Once again, any strike levies raised by ships on the carriage of containers will be passed down the supply chain and ultimately to the man in the street.
Productivity
In 2021 and 2022, the World Bank issued the Container Port Performance Index, in which they assessed the productivity and particular delays at 260 container ports around the world. In both reports, Durban, Cape Town and Port Elizabeth (Gqeberha) featured in the bottom ten of the list. Reputationally, this is disastrous for South Africa, almost certainly prompting shipping lines calling at those ports to adjust their freight rates upwards in order to cater for the delays they are likely to face. The impact of the strike will no doubt keep those ports among the bottom-performing ones in the world in the 2023 report.
One of the significant considerations, at the moment, is that Transnet is currently in a tender process by which it plans to privatise Durban Container Terminal Pier 2. The strike could not have come at a worse time and may adversely colour the perceptions of bidders, many of whom are internationally recognised terminal operators and shipping lines.
The only silver lining to this cloud is that the TNPA marine services and security are regarded as essential services and, accordingly, are not on strike. This means that ships are still able to call and work cargo at private terminals.
Nonetheless, when one draws a comparison between the impact on the ports of the strike with the impact on the ports of the Covid hard lockdown, they are not dissimilar. Arguably Covid had a lesser impact on the ports because at least strategic and humanitarian cargoes were allowed to move through the ports during the hard lockdown. Transnet had a reduced labour force in the ports during Covid, but at least they were able to be partially productive.
Legal Issues
There could be a myriad of legal issues to unravel following the strike. Although both TPT and TFR have declared force majeure, a number of organisations have already raised the question as to whether one can declare force majeure in respect of a strike in one’s own organisation. The validity of the force majeure declarations could have an impact on all other force majeure declarations in the upstream supply chain contracts.
Allied to this question will be disputes around supply contracts and supplier obligations, lost cargoes, supply chain services and impacts on industry directly or indirectly affected by the strike.
BUSINESS REPORT