Transport volumes falling off a cliff

The weak international commodity prices are having a significant impact on the South African economy. Growth has slowed and stagnated. The only real sign of strength is in the retail and tourism sectors, which are mostly stimulated by increased domestic travel due to the weak exchange rate.

However, the logistic sector is in the doldrums. Many segments of this sector have been in decline for the past 10 months on a year on year basis. The magnitude of this decline is approaching crisis levels and everyone from toll road operators to Transnet are feeling the impact.

Road freight volumes are down substantially compared to a year ago. The decline in rail freight has never been this big since the new data series was calculated and is far worse than the decline in road freight.

Port Break bulk data reveals that the largest drop in modern times is upon us as March volumes just fell away. This was mainly due to sharp drops in the export of iron ore in March and coal in February and January. We have never seen two consecutive double digit drops on a year to year basis.

Moreover, mining production fell by 8.7% in February and this will also adversely affect the logistics chain, especially Transnet Rail and Transnet Ports. There is no doubt that the rail volumes will be affected more, but it is important to note that significant volumes of commodities are transported by road. So expect road freight to also quieten down.

But it is not only bulk commodities that are falling off a cliff, it is also container volume. This segment has declined by 15.3% over the last year on a three month moving average basis. This is an even bigger decline than during the 2008/9 recession, but more about this a bit later. This is due to a lack of imports and very good indicator that a recession is upon us as the public simply cannot afford furniture and hi-fi systems anymore.

Factories may also be ordering in less stuff and some sectors with large inventories may slow down production levels.  (This is a critical question that will only be answered over a period of time.) The reality is however that container traffic is slowing down and this slowdown is much more severe than what we are seeing in the mining and agriculture sectors.

If this slowdown continues much longer, one suspects that Transnet may soon approach the fiscus for a bailout. Rail payloads have fallen off a cliff and Transnet is talking about moving fast moving consumer goods from Durban to Joburg. This will be difficult when a rail wagon takes two weeks and trucks less than a day.

The situation in the road freight industry is not as bad, but has been in decline during the past ten months. If things do not improve soon, this downward trend will continue with even steeper declines.

Operators are indeed under pressure and expect some serious fights for market share.

These declines must be seen in the perspective that the logistic statistics are much worse at any time during the last recession and it is clear that the March statistics for both rail and road will be far worse than February, which saw a 6% drop despite having an additional day.

It is also safe to say that we will soon see the impact of this 10 month decline flow through to the rest of the economy. It is difficult to see the economy not declining if all freight indicators are so negative. Our economy just cannot absorb such significant falls in commodity prices and transport volumes without sending the overall economy spiralling downwards.

But road freight also shows that the wholesale numbers of general goods should be in decline and that is starting to happen. This sector had a big agriculture increase as animals were sold due to the drought and this subsector added most of the nominal growth. Without that the wholesale sector would not have been up 0.8% up.

It is clear that this industry is in recession. An official recession is two quarters of negative growth, but the transport industry has now slipped by nearly four quarters. The freight industry is in deep trouble. It is actually the worst year on record for bulk commodities that I have seen since I became an economist.

This recession – at least for the transport sector – could be worse than the 2008/9 one and we are stuck once again with our pants at our knees. This suggests that the whole economy is shrinking.

Also note that the tragic drought in Southern Africa does bring some opportunities as about nine million tons of soft commodities will need to be imported by the affected Southern African countries such as South Africa, Zimbabwe and Zambia.

That is positive for transport but negative for the country.

Put on your boots this is going to be a rough ride.

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