Trade growth to improve in 2013

26th April 2013

  

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Maersk Line South Africa, subsidiary of the world’s largest container shipping company, sees a moderate trade growth for the country in 2013 after a challenging 2012. This is despite significant socio- economic challenges in the local market last year. These included the impact of industrial action in the mining and agri- culture sectors during the second half of last year, and a decline in consumer spending on the back of rising fuel, transportation, electricity and food costs.

“The 2012 financial year was definitely a tale of two halves. While the first half of the year was firm – showing growth in demand for containers for both imports and exports – the second half brought flat performance in the import sector, and a decline of 3% to 4% in the country’s total containerised exports,” says Maersk Line South Africa MD Jonathan Horn.

This forecast follows on the back of the Maersk Group 2012 results, which showed an improved profit of $461-million after the losses posted in 2011, while South African operations are expecting mid- single-digit growth in both the import and export sectors in 2013.

“On a macro level, intense competition, fuelled by an oversupply of capacity, had a strong influence on global freight rates and revenues. Maersk responded to these with a classic efficiency and cost containment strategy: managing capacity carefully, reducing unit costs by 1.7% in 2012, improving volumes by 5% and increasing rates by 1.9%.

This approach ensured that, while the return on invested capital for the year remained low at 2.4%, cash flow from operating activity was improved at $1.8-billion,” he says.

The mining sector strikes in South Africa in 2012, combined with a decline in commodity prices (chrome in particular) and a slowdown in commodity demand in the Far East, had an effect on export markets. From an imports perspective, increases in the consumer price index, largely fuelled by the well-publicised hikes in food, transportation and energy costs, have had a direct impact on levels of disposable income and consumption.

The weakening of the exchange rate in the second half of 2012 has also started to impact on imports owing to the increasing cost of imported items, although the full impact of this is likely to be felt in 2013.

“Commodities make up about 35% of South Africa’s containerised exports,” and, in the third quarter of the year, mining production decreased by 13%, compared with the same period in 2011. Further, exports usually improve as the rand gets cheaper, although this does take a while for the full impact to be felt; but, last year, it was a decline in demand for commodities that was largely responsible for pushing down containerised export levels. Positively, though, containerised commodity exports have shown a strong resurgence from December,” he explains.

However, positive developments on other fronts are beginning to counter- balance the negative trend. For example, China’s gross domestic product (GDP) is expected to grow by 7% to 8% this year, which is likely to continue to drive demand for commodities. Supply disruptions owing to industrial action in this critical sector of the South African economy can hopefully be kept to a minimum.

Horn also says if the rand remains at around R8.50 to the US dollar, this could represent a boost for exports. Historically, South African exports have tended to increase with the weakening of the rand, typically after a short period where exporters gear up their operations to cater for demand. It could, in fact, see total containerised exports trade growth reaching into the high single digits during the course of the year.

“We’re less optimistic about Europe though, with GDP declining in the fourth quarter as well as retail sales and industrial production continuing to decline. However, we do see encouraging signs in the US with consumer sentiment improving. The recovery in the housing market increased hiring and expectations of manufacturing production increases indicate that the economy is hopefully warming up after the financial crisis of 2008 and the deep recession that followed,” he points out.

Unfortunately, while the situation looks brighter for exports, the same cannot be said for imports, states Horn.

“The flat trend in the second half of 2012 bucked all trends, as this is usually the time when retailers begin stocking up for the festive season. South Africa’s import container market is driven largely by consumer demand for finished goods and, if this dips, the impact on imports is quickly felt,” says Maersk South Africa’s trade and marketing manager Matthew Conroy.

While inflation remains relatively low at 5.4%, consumers have to tighten their belts as prices of essential goods and services rise. Together with a tepid GDP growth forecast of 2.6% for 2013, this means the year is likely to be another tough one for consumers and demand for imports is likely to remain below par. This could, however, be offset by a degree of restocking if interest rates remain low, states Conroy.

Horn concludes that the South African market will remain competitive on the whole, with respectable growth expected in 2013.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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