Strait of Hormuz: Is SA missing an opportunity?

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JIMMY MOYAHA: This evening we’re taking a look at what the result of the escalation of conflict in the Middle East has done for global markets and, more specifically, what it could mean for the freight industry as we continue with our maritime reflections.

I’m joined on the line by the head of research for the Southern African Association for Freight Forwarders, the SAAFF, Dr Jacob van Rensburg, to look at this and see what we make of it. Dr Van Rensburg, lovely having you on the show. Thanks so much for taking the time.

The escalation of tensions today – is that really an opportunity that we can see amid all of the chaos that is unfolding around the world?

JACOB VAN RENSBURG: Jimmy, an absolute pleasure to be with you here tonight. I think it very important to create some context in terms of what is happening globally and how it relates to our own markets.

First, if we just consider the fact that about a fifth to a quarter of the total world trade goes through the Strait of Hormuz, and something similar in the liquefied natural gas industry; that captures a lot of the ocean flows in terms of the goods in the bulk market.

In terms of the containerised industry, slightly less; only about 2% goes through that strait. So it’s not that impacted.

This will mean something similar to what happened a couple of years ago – when we had the Ever Given [container ship] being stuck in the Suez Canal and causing a rerouting of the global shipping networks.

Now, of course, I always like to use this example – international shipping takes place on schedules, akin to the airfreight industry, and you have certain rotations that take anything between 60 and 90 days.

So any blockages at key bottlenecks, globally speaking, will result in a supply-chain shock more over a supply shock.

So that’s currently what we are seeing and that’s why the markets have reacted and we see the significant increase in the fuel price.

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So similar to what happened earlier in terms of the supply-chain shocks with the Red Sea crisis, you will see some rerouting of East-West trade going around the Cape of Good Hope.

What does that mean for us in South Africa?

We’ll see a lot of additional traffic in terms of especially the oil and the bulk liquefied natural gas industry, but not a lot of additional vessel calls.

So for South Africa they will bypass our shores, and we won’t see a significant economic impact.

JIMMY MOYAHA: Dr Van Rensburg, you mentioned the rerouting of global shipping routes and I want to get an understanding of what that means from a cost perspective. We know that when the Suez Canal was closed, supply chains were disrupted – and that also means significant increases in cost because of the longer routes.

Read: Middle East conflict an opportunity for SA ports – Ramaphosa

Does that mean we’re going to expect more of the same in this respect? Does that mean that certain things might not be able to move any other way? We know the Suez Canal for the moment remains open, but that could change overnight as well. Where does this position us in terms of what needs to be rerouted?

JACOB VAN RENSBURG: In terms of the global industry, you and your listeners can just imagine that the oil trade is a significant driver of underlying costs, especially in logistics.

Now, in the realm of logistics we often talk about the time it takes to move goods, the cost incurred to move goods, and the predictability and reliability of the system to function.

Currently we are impacted on all those fronts, especially in the world trade, and hence the markets have immediately [seen] a spike in the oil trade.

We see the barrels of Brent crude oil in excess of $100. We might see $150/barrel if the crisis continues. So that adds additional cost at the bottom line.

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Earlier today we saw the inflation figure for February was quite positive, at 3%, which is quite good. But we might see a reversal of that back to 3.54% in terms of inflation.

Now, in terms of the time it takes to ship goods, we might add a couple of days in the supply chain of liquefied natural gas, LNG, and the oil trade – not so much in containers.

So consumer goods, value-added goods, electronics, all those tertiary kinds of goods won’t be impacted initially, but we might see a secondary and a tertiary effect as time goes by.

We are now entering the fourth week of this crisis. We’ve already seen a significant increase in the jet fuel prices.

We’ve also seen air cargo being quite delayed, the major carriers having their hubs in that area of the world, the Middle East. Think about Emirates, think about Qatar Airways, think about Etihad [Airways]. So it has a knock-on effect in terms of everything that we do.

Read: Jet fuel price spike could make flying unaffordable

As I mentioned earlier, in terms of the containerised cargo not much of an effect. Only about 2% of the total trade traverses this strait.

But the longer this crisis continues, the longer supply chains will be extended in days, and we’ll see some added cost to the bottom line.

JIMMY MOYAHA: These tensions aren’t going to go away anytime soon, and it’s for us to figure out how they are going to impact markets as we move forward.

Read: Goldman Sachs warns oil’s biggest shock will hurt fuels most

For now, we’ll leave the conversation on that note. Thanks so much to Dr Jacob van Rensburg, head of research at the Southern African Association for Freight Forwarders, taking us through some of the potential impacts of the ongoing tensions in the Middle East.

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