South African businesses are expecting a huge bill, with an estimated at R1.4-billion for storage and demurrage costs that have been accumulated during the 27 days of Level 5 lockdown, as more than 20 000 containers piled up in storage facilities across the country.

This week, the South African Association of Freight Forwarders (SAAFF) CEO David Logan expressed ‘serious concern’ at the high level of charges being invoiced by shipping lines for storage and demurrage on cargo which could not be delivered during the early stages of lockdown.

“SAAFF represents 294 South African companies in the international freight forwarding and customs broking arena managing approximately 70% of the containerised and break-bulk freight moving in and out of South Africa’s seaports, airports and land borders,” he says.

“Until recently, containers could not legally be delivered to closed importers until the appropriate lockdown level was reached. As a result, cargo was delivered and unpacked into warehouses.  In many cases the position remains the same with Level 3 only making its presence felt this week”.

“The level of charges levied by ocean carriers have been a source of concern for many years, but in normal times there was some justification for this as it was generally speaking relatively easy to clear and deliver containers within the free time allowed. Under these circumstances it was reasonable for the carriers to expect that their containers should be returned and put back into service without delay” Logan points out.

“COVID-19 has changed all that. The extended time spent in Levels 5 and 4 has meant that large numbers of containers could not be delivered with the situation only recently easing up when Level 4 allowed a limited amount of movement. The move to Level 3 will mean that a further large quantity of containers will be released for delivery, so we can expect increasing pressure in terms of exorbitant detention costs. Even at this stage, the amounts involved are very high and we are aware of invoices running into many millions of Rand already”.

Logan warns that this will not improve for some time.

Shipping line charges for delayed containers are derived from two main areas: storage (or overstay) and demurrage (or detention). The first usually involves a mark-up often running into several hundred percent of the warehouse’s charge.  The second is a direct charge for loss of use of the container. This is always charged in US Dollars at rates which bear no relation whatsoever to the actual cost of owning or leasing a container.

“In reality, these charges were designed to penalise inefficiency rather than to recover costs.  There is no logical reason why this approach should be applied in our current circumstances.

We appeal to ocean carriers to exercise restraint and moderation by recovering only their outlays, although we would accept that some reasonable administrative charge could also be imposed,” Logan concludes.

Certification and Operations Manager Appointed at the Road Freight Association

Kevin van der Merwe a veteran Trucking industry specialist has been appointed as the Executive Manager: Certification and Operations at the Road Freight Association (RFA). He replaces Gavin Kelly, who has served as the Chief Executive since June 2019. Kevin will officially take on this role effective from the 1^st of September 2020.

Kevin is no stranger to the RFA: he has been consulting for the Association for nine years, focusing on abnormal loads and vehicle loading. In January 2019 he was appointed as the Acting Executive Manager – Certification and Operations while the CEO position was being filled, to assist Gavin in ensuring members received the attention they needed.

His new role deals with certification: ensuring members are able to meet the Core Code and objectives of the RFA – from meeting compulsory standards, to elective certification of members for Road Traffic Management Systems – SANS 1395, Quality Management Systems – ISO 9001 (Integrated Freight Management Systems),  Environmental Management systems ISO 14001 (Integrated Freight Management Systems), Occupational Health and Safety – ISO 45000 and RTSMS (Road Traffic Safety Management System – ISO 39001), as well as operations: assisting with day to day challenges that members face in operating a commercial transport business in terms of the NRTA (and related legislation).

Solving Problems for Members

Whilst Kevin will continue with his work on abnormal loads and vehicles – “I have the support of a very experienced team who are experts in key areas that service the needs of our members”, he will now be involved in dangerous goods, green trucks, smart trucks, SMMEs, the Transport Education and Training Authority (TETA), security matters, traffic prosecutions, technological developments, operating costs, removals, couriers and recovery vehicles –  just to name a few. “My focus is to ensure that I engage with various role-players and stakeholders to solve and prevent problems that impact on the operational ability of members, as well as intervening in matters when irregularities are detected,” says Kevin.

Member and Industry Engagement Crucial

Interactions and engagements with RFA members are key in his new role: “The operational challenges and developments of members also form part of the responsibility of the position,” continues Kevin. “It enables me to engage with various role-players within the road freight and logistics industry:  including members, government departments, suppliers, Original Equipment Manufacturers (OEMs), equipment developers and academia. The position is responsible for driving engagement with our members through its various interest groups to ensure that the specific industry segments we represent have a conduit to effect the changes they want to see and ensure that the regulatory authorities do not lose sight of the fact that they must engage with industry on all matters that impact on it.”

Unlocking Membership Value

Kevin is excited at the opportunities his new position offers to unlocking membership value: “It is great to be part of such a dynamic group of capable people who understand the importance of putting our members first. The RFA has a great reputation as an effective industry representative body that takes direction from its members and is committed to unlocking membership value. The “reset” of the Association under the new leadership and focus on the needs of members is critical to the continued success of the RFA”.

COVID-19 and Consultation Cutbacks

Commenting on the myriad of challenges currently facing road freight operators, Kevin says: ”The COVID-19 pandemic has provided regulatory authorities with an ideal excuse not to engage with industry on a regular basis on matters such as the high cube container height limit issues, and the true meaning and purpose of “consultation” when engaging with interested parties for the purposes of introducing new legislation. I am however positive that we will get matters back on track as soon as the restrictions on movement and industry are lifted.”

The RFA is not opposed to regulatory authorities, because their role is to support industry and bring about a conducive operating environment. “As an Association we must endeavour to always put the needs of members first and continually find ways to unlock member value,” concludes Kevin.

With what may be a new-normal which includes uncertainty, disruptions, and a dynamic environment, here a several practical steps road freight operators could take to ensure some stability in their operations.

Gavin Kelly, Chief Executive of the Road Freight Association (RFA) offers some valuable advice for all road freight operators during these challenging and unpredictable times:

1. Follow the COVID-19 Health Protocols published by the RFA: your business needs to follow these as a start.
2. Ensure that you are registered with the National Bargaining Council for the Road Freight and Logistics Industry (NBCRFLI) so that you can benefit from the huge assistance packages the RFA has made possible. This helps you pay workers and will keep your business going during the dry spell.
3. Look at your expenses: Make sure that you cover the important aspects of your business. Cutting maintenance costs for example is not a wise approach.
4. Ensure you play a role in identifying corrupt practices.
5. Join the RFA so that we can tackle corruption and other challenges together.
6. Transport efficiently and safely and refuse to operate in non-sustainable circumstances. Ask a decent price for a decent service offered – don’t accept anything that is sub-standard.

There is a long, rough road ahead and those operators that survive and thrive are going to be those that are adaptable and agile.

After two years of record exports, Chinese manufacturers are turning downbeat as consumers in their biggest markets curb spending and Covid lockdowns drive customers to competitors in the region.

With most of the world now living with the coronavirus and travel and other leisure activities resuming, consumers are cutting back on spending on Chinese-made laptops, phones and other work-from-home goods that propelled the nation’s exports and fueled the economy’s recovery from its pandemic slump in 2020.

On top of that, soaring inflation in the U.S. and Europe means households are tightening their belts, while costs of raw materials and logistics remain excessive, eating into exporters’ profits.

Those are just some of the challenges that businesses like Shenzhen Teanabuds Electronics Co. have been grappling with. An exporter of wireless earbuds, headsets and speakers to the U.S., Europe and the Middle East, the company has seen orders plunge by about 50% compared with last year.

“They will only continue to decline in the rest of this year because we are losing our advantage,” said Zhang Wanli, the company’s global marketing director.

Some of Teanabuds’ clients have recently shifted their orders to Southeast Asian countries as suppliers there offered lower prices given their supply chains are less stressed, Zhang said. High raw material and shipping costs have narrowed the company’s profit margin to 15% from 30% in 2019, he said.

The slump in demand for Chinese goods is a blow to the economy, which is already forecast to grow at the slowest pace in decades this year due to a property market slump and the government’s aggressive Covid-related restrictions.
After surging 30% in 2021, exports are likely to grow just 1.6% this year, according to Nomura Holdings Inc. Exports accounted for more than a third of China’s growth last year and 20% in 2020, the bank estimates.

Trade will likely get a temporary boost as Shanghai reopens from its two-month long Covid lockdown — economists expect data Thursday to show exports grew 8% year-on-year in May, up from 3.9% in April. Still, the trend for the rest of the year is down.

“The export boom caused by Covid is behind us,” said Larry Hu, head of China economics at Macquarie Group Ltd.

Exports may contract this year in volume terms even if nominal growth could be positive due to price increases, said Thomas Gatley, a senior analyst at Gavekal Research Ltd. A drastic slowdown would put Beijing’s economic growth target of about 5.5% further out of reach.

“This is really not a good time for exports to weaken as well,” said Gatley. “This is why policy makers are increasingly panicking.”

Even though global consumers remain cashed up, fading government fiscal support and rising interest rates are impacting their disposable income. And with shoppers pivoting their spending back to services from goods, demand is sliding.

Vice Commerce Minister Wang Shouwen also acknowledged the pressures facing China’s trade, saying Wednesday that “we must be soberly aware that there are still a series of uncertainties in foreign trade.” A fragile global economic recovery, high inflation internationally, and logistics bottlenecks within China all cause uncertainties for the trade outlook for the rest of the year, he said at a press conference in Beijing.

Major U.S. retailers like Walmart Inc. and Target Corp. are also sitting on inventories of $45 billion, up 26% from a year ago, which they bulked up during the pandemic to overcome shipping delays. That means they’re under no pressure to place new orders.

Guangzhou GL Supply Chain Co., which makes everything from gardening products like watering cans and table cloths to Christmas-themed storage bags, says orders from U.S. and European customers have declined by half from the same period last year.

Even products for the Christmas season are selling poorly compared with 2021, “perhaps because people have to spend more money on basic necessities” because of higher inflation, said Chen Zijian, the sales manager.

“Last year, the pandemic was more serious,” he said. “But we sold gardening products, and the business wasn’t impacted much, perhaps because people stayed at home and gardened.” Compared with last year, “our orders have declined quite a lot,” he said.

Losing Out

More broadly, analysts say that a shift in supply chains for cheaper manufacturing in Southeast Asia is accelerating after a brief pause in the past two years. About 7% of Chinese orders for furniture were lost to countries like Vietnam between September 2021 and March 2022, as well as 5% for textile products and 2% for electronics, according to an estimate by Everbright Securities Co.

That challenge is being compounded by elevated raw material prices and freight rates. The raw materials subindex under China’s producer price index surged 17.4% in April, keeping costs elevated. The Shanghai containerized freight index is still at over four times pre-pandemic levels despite a retreat of 17% so far this year.

Even those exporters that are doing well are worried about what’s ahead as the Federal Reserve and other central banks raise interest rates.

Hermann Zhai, general manager of Shandong-based Kinghike Vehicle Co., which exports electric golf carts to the U.S., is enjoying a surge in orders thanks to more clients switching to electric instead of gasoline-powered carts in the face of skyrocketing energy prices.

“I hope the measures the Fed is taking will be effective to contain inflation,” Zhai said. “If it worsens and becomes hyperinflation, that could damage our sales significantly.”

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The Port of Los Angeles, the U.S.’s busiest, is preparing for the early arrival of the 2022 peak season for cargo as retailers stock up on back-to-school and fast-fashion products despite high inventory levels, Executive Director Gene Seroka said.

“The upstream orders coming from Asia — getting ready for an early arrival of peak-season goods — look strong; the June numbers will be very healthy,” Seroka said in an interview on Bloomberg Television Friday. He added that the port handled just under 970,000 units of cargo in May, making it the operation’s third-busiest month on record.

Retailers have been building up inventories amid soaring consumer demand and transportation bottlenecks, but many including Target Corp. and Walmart Inc. are trying to figure out how to sell all their products as people shift to spending more on services over goods.

“The cargo keeps going because the consumer keeps buying. Those inventory levels have to be built up across a wide spectrum of retailers and importers,” he said. The shipments due to arrive are not necessarily the product that is going to be looked at for discounting and pushing out, but are instead seasonal goods specific to the second half of the year, such as back-to-school items.

“What we’ll also see is cost-minded consumers looking for the necessary bargains to put food on the table for dinner. We may be buying hamburger instead of steak, beer instead of fine wines. We’re going to keep buying; our savings accounts are fairly high.”

President Joe Biden visited the port Friday to highlight the White House’s push to smooth out the supply chain crunches that have stoked the hottest inflation since 1981.

The president and his administration have helped since last year to reduce massive backlogs at the twin ports of Los Angeles and Long Beach, which handle 42% of containerized trade with Asia. The gateways have been bracing for an earlier-than-normal peak season in shipping, which usually starts in July ahead of the holiday season.

The easing of port congestion in Shanghai is expected to unleash a wave of containers on the U.S. West Coast that could clog supply chains further.

This year, it’s likely to coincide with what some port chiefs say will be an increase in cargo arrivals that had been held back from the U.S. because of the lockdowns in Shanghai and surrounding areas, as well as the expiration of labor contracts for 22,000 dockworkers across 29 ports in California, Oregon and Washington.

Read more: What West Coast Ports’ Labor Negotiations Mean for Supply Chains

“What we’re going to see here in the next month or two is an accelerated number of calls for the volume that did not come during the ‘zero policy’ lockout slowdown,” Long Beach Executive Director Mario Cordero told Bloomberg Television in a separate interview, citing disruptions in transportation and labor shortages across the Pacific. “While it’s fair to say that the ports in China were not closed, it’s also fair to say that the supply chain there was rather chaotic.”

Seroka has said cargo flows from China have been consistent despite the lockdowns, with freight moving through the Yangshan and Ningbo while Shanghai operations were shuttered.

Los Angeles “did not see the precipitous drop in cargo that some observers had called for — the ports and central government had prioritized this long haul cargo coming to Los Angeles, the southern California ports,” Seroka said. “And now we’re starting to see just a little bit of an uptick, which are the peak-season goods.”

The Los Angeles port chief said dockworkers and employers are unlikely to reach a new contract by the expiration of the current one on July 1, but both sides have committed to keep operations running.

“They’re going to continue to work as hard as they can at the table while everyone is out moving cargo,” Seroka said, adding he doesn’t see a strike on the cards. “We don’t want any disruptions to the American supply chain.”