Trade between South Africa and China has been growing in recent years, with the Asian powerhouse having become one of South Africa’s biggest trading partners, Blue Strata CEO Adam Orlin tells Engineering News.
Although this increase in trade has been hugely positive for Chinese suppliers and local importers, South African companies need to overcome several challenges when dealing with Chinese suppliers to mitigate any risk to their business – now more than ever – he explains.
“Shipping and transport rates are very sensitive to market changes, so it is imperative that importers have a thorough understanding of the industry to stay up to date. At certain times of the year, space on vessels, as well as storage space on land, becomes an issue – placing cargo at a late stage can, therefore, prove difficult and costly for companies,” Orlin elaborates.
He adds that the devaluation and volatility of the rand and the US dollar are other challenges that have emerged for importers of Chinese goods. This has resulted in an emerging trend of Chinese suppliers requesting payment in yuan, and importers have to facilitate this more frequently.
Orlin points out that importers have subse-quently had to act proactively to deal with these challenges, including ensuring that there is complete synchronicity between all service providers to maintain constant communication.
“There are many steps involved in importing goods – from order, forex management, payments and logistics to port, incorporating inland transport and product costing. When these elements are not managed on an integrated basis, delays, errors and indirect costs can occur, the effects of which are either not communicated to the CEO and CFO or not readily quantifiable.”
He cites that current industry challenges include currency and market volatility, price instability and increasing global freight rates, as well as the unpredictability and tightening of operational costs, which means the need to improve logistics and terminal loading facilities is critical.
While it is difficult to determine what the full impact will be, one thing is certain – getting the value chain right either way will be critical. Various strategies will be deployed by different businesses, with some having a rigid and con-sistent policy and others managing their risk on a more ad hoc basis in conjunction with the market.
However, he says importers will act in the best interests of their business, based on current market conditions – and the only way to do that is to ensure that they have greater visibility to make the correct decision.
“Technology can deliver significant value to the business bottom line.”
He stresses that having the right technology and system in place enables trade financiers to assign different values to different stock in a dynamic way.
“This collateral risk management platform enables a company to update its risk management systems in terms of the way it values assets. By collaterally managing the risk, the trade financier can place value on goods in transit as opposed to simply taking stock and debtors at a point in time,” he concludes.