INSIGHTS: IMPORTS AND EXPORTS
Encouraging uptick in SA’s logistics sector
Many Investec clients have reported strong trading months since lockdown restrictions were eased
SA’s freight transport index has shown an encouraging uptick in the third quarter of the year, illustrating a recovery in demand.
According to the Ctrack Freight Transport Index, SA’s logistics sector has just had its strongest quarter of growth to date. In June the index recorded a decline of 17.6% compared to the previous quarter. Air freight — the worst hit sector — has had the strongest quarterly recovery, showing a 22.5% recovery, while sea freight grew 13.2% quarter on quarter.
Rail and road showed increases of 16% and 16.8%, respectively, compared with the previous quarter.
Despite the fact these increases are on the back of a low base, they are positive green shoots, says Dr Greg Cline, head of corporate accounts at Investec for Business. Many of Investec’s clients have reported strong trading months since lockdown restrictions were eased, a further sign the local economy is entering a growth phase despite the fact it is far off from pre-Covid levels.
However, he cautions that despite these positive indicators, global geopolitical events will continue to have a ripple effect on trade. Significant changes to US policy, for example, could dramatically affect SA’s economic growth and trade.
Globally trade has made a strong recovery in recent months, despite the trade war between the US and China which has led to a diversion of trade flows away from both China and the US.
Pointing out the US-China trade wars have been a negative influence on the local economy, Cline says a stabilisation of trade agreements will bode well for SA. “The African Growth and Opportunity Act — a centrepiece of SA’s economic trade partnership with the US — expires in 2025. It is estimated $9bn worth of trade is transacted between the two countries of which there was a $2.1bn surplus from SA exporting to the US in the past year.”
The Trump administration has previously identified SA as being restrictive from a trade perspective which means an agreement renewal in its current form is far from guaranteed, says Cline.
While trade has never been a centrepiece of Joe Biden’s election campaign, he has earmarked a $2-trillion stimulus package which has not only translated into optimism in the market but which, if implemented, will also be favourable for SA, believes Cline.
Local businesses, he adds, will benefit from a strengthening of the rand given that it will allow local importers to offer consumers more affordably priced imported products. “Despite the fact almost 2-million lost their jobs due to the lockdown, the economy is benefiting from a low interest rate cycle. In fact, the cost of debt has never been as low which is providing an opportunity for local importers to optimise their inbound supply chain efficiencies,” he says.
Many companies are relooking how they fund their businesses, including refocusing on supplier relationships, their core product offering and restructuring debt, says Cline, adding the correct funding
mix that allows companies to access the appropriate finance at the right time, including debtors and other asset-based facilities, is critical.
“Having a funding partner who is also able to provide an end-to-end import solution which allows for a single point of contact in the import process is also critical as it effectively removes the administration and complexities associated with managing the import procedure and eliminating all risks in the supply chain, particularly for mid-sized corporates,” he says.
Pre-Covid, many companies funded short-term import funding commitments with long-term money, explains Cline. “While trade finance may appear more expensive, what needs to be factored in is importing finance requirements are typically not long-term commitments. Being able to access an increased quantum of funding as and when needed is critical to growth companies and their ability to fund stock.
“SA will always be a passenger to market movements and forex fluctuations. However, a noticeable recovery in the trade sector gives rise to a bullish view that import and export demand will continue to grow in 2021,” he says.
The prosperity of businesses locally is dependent on their ability to trade, coupled with a stable economic outlook, says Cline, adding that it is the responsibility of business leaders to build a vision of SA that is pragmatic and which accounts for the numerous global risks brought about by factors out of SA’s control.
This article is part of a special Business Day feature titled Insight: Imports and Exports, published in November 2020. Read the other articles in the series:
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