Does SA really need a state-owned shipping company?

Government has tabled a bill to establish a state-owned SA Shipping Company (Sasco), ostensibly to protect the country against supply chain disruptions.

Just as South African Airways (SAA) was the national air carrier, Sasco would be the national shipping carrier.

Sasco would own at least one oil tanker, a chemical tanker, container ship, bulk carrier and a limited fleet of vessels, all with preferential access to SA ports.

This is to be funded by the Industrial Development Corporation (IDC) and money appropriated by parliament.

The plans for a national shipping company form part of the Comprehensive Maritime Transport Policy and were first mooted in 2017.

“The shipping of our essential imports and exports is mostly reliant on foreign governments and companies and this might not be able to shield South Africa from supply chain disruption, especially during times of natural disaster or international conflict,” says a Department of Transport (DoT) statement.

South Africa is alone among Brics nations in not having its own ships, which makes it vulnerable to supply disruptions, says the DoT.

Motivation?

The timing of the shipping company announcement is puzzling, coming so soon after SAA’s inglorious financial collapse before being revived as a partially privatised airline, and the multiple volumes of the Zondo Commission’s investigation into state capture at state-owned enterprises (SOEs).

The idea of establishing another SOE makes little sense, says Ghaleb Cachalia, DA spokesperson on public enterprises.

“The supply chain issues are not a result of a dearth of ships, but because of [the] inability of ports to get their act together,” says Cachalia. “International shipping companies are capable of doing the work [of a national shipping company]. All government has to do is fix up the ports, and make sure loading is working and containerisation is working.”

The recent Transnet pay strike created backlogs at the major South African ports, which may take up to two months to clear.

Durban, Cape Town and Ngqura (East London) were rated in the bottom 10 of 370 ports worldwide, according to the World Bank Container Port Performance Index for 2021.

“South African ports are beset with operational inefficiencies,” said the report.

“For example, at the start of this year [2021], cargo ships entering Cape Town had to wait for up to two weeks to berth before customs and offloading could commence.”

An equally pressing issue facing logistics providers is getting cargo from the ports to the hinterland, and getting dry bulk cargos onto the seas for export. This has been held up by operational problems at Transnet.

ALSO READ: Ex-Transnet boss says he’s not corrupt, denies R300k kickbacks

Viability

Fixing these issues would do more to cure the supply chain problems facing the country than starting up a new national shipping carrier, says Andrew Pike, head of ports, transport and logistics at Bowmans Law.

There is some merit in the new shipping company, in that it would attract some of the shipping and freight fees currently moving offshore to international shipping carriers, adds Pike.

“But unless this revenue comes onshore, I don’t see much point in having a national shipping company.

“You need scale if you are going to do this competitively, and we are talking here about a very small fleet of ships,” says Pike.

“It would be difficult to get customers to use this service unless you force people by legislation to carry a certain percentage of cargo at freight rates, which I doubt will be competitive – and that in itself might be seen as anti-competitive.”

Pike adds that SA labour legislation is not competitive with shipping companies operating in low-tax jurisdictions like the Philippines and Thailand, so there would have to be some compelling reason to use Sasco services, such as tax benefits.

Accompanying bill

The Sasco bill is to be accompanied by a new Merchant Shipping Bill, which makes provision for cabotage, or the obligation to ship between ports within a country on that country’s own ships.

Forcing companies to offload cargo and reload onto Sasco ships for transport between, say, Cape Town and Durban, would be both time-consuming and costly, adds Pike.

Among the stated objectives of the shipping company is to participate in the import and export of goods as a preferred national carrier, to own and manage a fleet of ships, and to offer associated services such as goods clearance, stevedoring, warehousing, logistics, tanker, bulk cargo and coastal shipping services.

Pike points out that these services are already well served by a host of companies operating in SA, and it is unlikely that shipping clients will switch to a national carrier without a compelling reason.

Safmarine, formed in 1946, used to operate as SA’s national carrier but was sold off in 1999 to Maersk Line. The two biggest international shipping companies operating in SA are Maersk, in part due to the inheritance of the Safmarine fleet and business, and MSC.

Rather than purchasing ships outright, another possibility is to charter ships, which would require less capital outlay.

ALSO READ: Cape Town port terminals back on track after Transnet strike

Palesa Phili, CEO of the Durban Chamber of Commerce and Industry, says healthy competition is good for business, and any new business entering the shipping sector is positive, and should lead to more competitive pricing.

“At this stage, we are deeply concerned about the state’s ability to manage a state-owned company. Government does not have a good track record, nor is there much confidence in [its] ability to manage SOEs.

“South Africa’s SOEs are in a state of financial and operational collapse, suffering from chronic mismanagement, plagued by ongoing corruption, and characterised by a complete lack of adherence to effective governance and compliance frameworks. We strongly believe [the] private sector needs to be allowed to engage in the process to ensure a fair and transparent strategy is formulated.”

The Covid pandemic, the July 2021 riots and April 2022 floods in KwaZulu-Natal taught the business community to rethink the way it does business.

“Businesses need secure, efficient, and future-proof supply chains,” says Phili. “By allowing local companies to enter the maritime sector, we believe it will lead to job creation and positive economic spin-offs across the maritime value chain.

The Durban Chamber of Commerce and Industry believes it’s important that the ports are fixed and efficient. Both international and potentially local shipping lines require efficient ports to operate.

However, we believe the situation needs to be looked at separately. We cannot forgo economic progress at the cost of systemic issues. Transnet is responsible for managing the ports, this means Transnet needs to be held accountable.”

This article has been updated to include comment from the Durban Chamber of Commerce and Industry.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.