State shipping firm plan draws scorn
• ‘To insert a shipping SOE into the mix is too horrible to contemplate’
Trade advisers have questioned a plan to establish a stateowned shipping company, saying it is an “awful” idea that could hamper exports. “Aside from the horror that is any state-owned enterprise, it is not clear why anyone would choose to use this shipping line,” said Clive Vinti, an associate at XA International Trade Advisors.
Trade advisers have questioned a government plan to establish a state-owned shipping company, saying it is an awful idea that could hamper exports.
The state is pushing to establish its own shipping company, saying such a move is necessary to reduce reliance on foreign companies and shield SA from supply disruptions.
According to the draft SA Shipping Company Bill published by the department of transport earlier in November, research it conducted identified SA as the only country not to have its own ships among Brics states — an association of five major emerging economies, namely Brazil, Russia, India, China and SA.
International trade is at the core of SA’s economy with the country shipping more than $100bn worth of goods in 2021, and bringing in products amounting to about $70bn.
Marine transport is the main driver of trade, with the bulk of imports and exports transported by sea through a system of commercial ports. Estimates suggest that seaborne trade accounts for between 80% and 90% of SA trade.
“It is precisely for these reasons that [establishing a stateowned shipping company] is a truly awful idea. Aside from the horror that is any state-owned enterprise (SOE), it is not clear why anyone would choose to use this shipping line to move their cargo,” said Clive Vinti, an associate at XA International Trade Advisors, a major trade advisory firm in SA.
The drive to establish a stateowned shipping company comes amid growing calls for the privatisation of SA’s struggling SOEs, like Eskom, which cannot keep the lights on and relies on government bailouts to stay afloat.
Critics and opposition parties often highlight the government’s poor track record in overseeing state companies as one of the many reasons such entities should be left to private players, saying such a move could improve operations and lessen the burden on taxpayers.
Vinti said a new state-owned shipping company was very likely to rely on the government to stay afloat in a very tough market. “Like all other SOE’s, the government could put subsidies into the system — we end up calling them bailouts when we pretend they can ever be commercially viable and then are not. If we found the magic money tree to do this, we would run the very real risk of our exports being countervailed (duties imposed to offset subsidies), by our trading partners,” Vinti said.
Shipping lines are fiercely competitive and ships are expensive, both to buy and run, “so don’t expect the existing shipping lines to step back for this new entrant”. A new Panamax, a “typical” cargo ship, holding between 3,000 and 5,000 20-foot containers costs about $35m (R600m).
“And you haven’t yet put in fuel or employed a crew. Running costs are about $9m (R153m) per annum (mainly fuel and port costs). Now you have to sell this space to freight forwarders and if your price and service are not good, they won’t use you,” Vinti said.
He said that ordinarily, the setting up of an SOE in the shipping sector should create more competition for the transport of exports and imports, which is good for customers and, hopefully, pricing, stability and availability of services.
“[But] the obvious challenges are the enduring scourges of corruption and maladministration in SOEs. The significance of shipping cannot be understated since our international trade policy and economy overwhelmingly rely on ships for our imports and exports. To insert a shipping SOE into the mix is too horrible to contemplate.”
Paul Matthew, the CEO of the Association of Meat Importers and Exporters, said that while he had not seen much information on the proposal as yet, the priority should be getting the ports up to standard.
The bills ’ authors write the following: “Since Maersk acquired SA shipping line Safmarine [more than two decades ago], SA has been without a national carrier. The shipping of our essential imports and exports is mostly reliant on foreign governments and companies and this might not be able to shield SA from supply chain disruption, especially during times of natural disaster or international conflict.”
Transport minister Fikile Mbalula has previously stated that the establishment of a national shipping carrier would be vital to “building strategic national shipping capacity and capability”. His department will hold virtual stakeholders’ consultation on the bill, starting with participants in KwaZulu-Natal (November 28), the Western Cape (November 29), and Eastern Cape (November 30).