UPDATE - AFRICA REGION - JONATHAN HORN - MARCH 13, 2009
INTERVIEW WITH JONATHAN HORN, SAFMARINE'S AFRICA REGION EXECUTIVE
(As provided to Business Day Exporter for publication on 6 April 2009)
Question 1 - Since your appointment at Safmarine in April last year and your comment regarding the levels of growth into Africa of 5% over the past 5 years, specifically related to the commodities boom, how have the most recent changes in the global economy altered that?
Although growth rates in Africa's markets are now cooling in line with global trends, demand for commodities in particular is expected to continue in 2009, albeit at much lower levels.
One must bear in mind that despite the global slowdown, there are still several important economies from an African perspective that will continue to grow, for example China, India and the Middle East.
Naturally as global consumption has declined, this has impacted on manufacturing and the off-take of commodities from Africa.
This reduction in export growth of commodities emerged in the last quarter of 2008. Taking a longer term view however, the long-term supply and demand picture for commodities is expected to return to levels experienced over the past few years. When this position will return is very difficult to predict as it is dependant on global demand, driven by the economic recovery of the large consuming nations.
Africa's trade volumes, which had shown good double digit growth throughout 2008, came off significantly in Q4/2008 and we have seen this trend continue into the first two months of 2009 when compared to the same period last year.
Several factors - such as significant raw material stockpiles, the decision taken by several industries to extend their end of year holiday closures well into 2009, as well as the earlier-than-usual Chinese New Year - have no doubt had an influence on trade to and from the Africa Region in this early part of 2009.
Current market sentiment is for trade growth in Africa to drop below 5% in 2009 (anticipated to be at around 3%, as a result of the global economic crisis).
I continue to remain confident that in 2009, Africa's growth will remain ahead of global growth, albeit at reduced levels.
Infrastructural development projects in Africa are likely to continue - once again, at reduced levels. These projects will continue to have a positive impact as goods and services will be required for these investments.
Question 2 - Has the international economic meltdown had a significant impact on any of Safmarine's existing export services or routes, with reference to issues such as increased operating costs and fluctuating world crude oil prices?
Clearly as the world economy has faced recessionary pressures, so the level of world trade has reduced as a consequence of this.
The overcapacity in the shipping industry has been widely reported and Safmarine like all other major players in the industry has had to - and will continue to - adapt its schedules and vessel infrastructure to this where necessary.
Failure to react in this manner rapidly reduces one's cost competitiveness. It remains vital to match available services to the demands (in terms of capacity, routes and schedules) of our customers.
Bunker prices are a major cost element of any shipping company.
While recent months have seen large reductions in crude and thus bunker prices, off the highs of 2008, the spikes in bunker prices experienced over the past year or so had a significant impact on our cost and thus, rate structure.
As with any industry dependant on fuel as a major input cost, shipping companies alone cannot bear this cost and volatility burden. While significant efforts have been and will continue to be undertaken to reduce bunker consumption, the cost and risk burden is something that has to be shared within the supply chain.
The implementation of our Bunker Adjustment Factor formula last year, we believe, was an important step in creating transparency around this significant cost element and sharing the impact of changes in a fair and consistent manner.
Last year, Safmarine increased its global volumes by 14%. Africa as a Region contributed significantly to the overall positive result for Safmarine and our volume and revenue picture was in line with the Safmarine global result.
We anticipate that Africa will once again be a major contributor to our financial results for 2009.
Although we obviously expect our 2009 results to reflect the slow-down in global trade.
From a Safmarine point of view, we regard the current global economic situation as an opportunity to get even closer to our customers and to further strengthen our relationships with them.
During tough times we know it is important to clearly understand the impact on our customer's business because it is only by improving our knowledge of their challenges that we can find ways to contribute.
A large percentage of manufacturing or production costs sit in the supply chain which is why it is important, particularly in these times, to find ways to reduce costs, wherever possible.
Now is not the time for 'win-lose' deals; it's about finding long-term wins for both the carrier and shipper. We are both affected by the current global downturn, which is why it is important to work together to find solutions.
Question 3 - With the motor industry feeling the worldwide economic crunch, and with several of the larger manufacturers closing down branches internationally to reduce costs in different countries, how do you see this impacting on Safmarine's seafreight volumes? Has this, or will it have an effect on Safmarine's shipping of motor vehicles to Europe, the US and the East?
The significant challenges being faced by the automotive sector globally are well documented. The exact impact going in to 2009 is difficult to gauge, as there are a range of numbers that are being bandied about by industry commentators.
We do know though that this will be significant, probably of the order of at least 25% to 30% of the auto sector volume in 2009.
From a South African perspective, the downturn in volumes on the UK/North West Continent routes is already evident. The southbound market is heavily dependent on the automotive sector both in terms of CKDs, parts and sub suppliers. This segment in the South African market has been markedly affected by current economic events in terms of local sales and production for local demand as well as exports.
A substantial portion of our northbound exports ex-South Africa are reefer (and not auto) and based on early 2009 volumes looks to be a good season ahead. Northbound volumes further into 2009 will of course depend on how the recession affects the European consumer.
Question 4 - Is there any evidence that exports may have benefited from some of the direct results of this downward trend worldwide, such as increased interest rates and the weak rand?
Historically South African exports have tended to increase with the weakening of the Rand (typically after a short period where exporters gear up their operations to cater for demand).
Although the Rand has weakened from approximately R8 to the USD to around R10 to the USD in recent months, export volume performance has remained depressed from Q4/2008 as a result of the global economy. Even though the drop in the Rand has made South Africa's exports more attractive, the global demand is just not there right now to fuel significant export growth at this time.
From a local South African consumption perspective, even though interest rates were reduced in South Africa at the end of 2008 - and a further interest rate reduction was announced in early 2009 (with more likely to come in the course of 2009) - we expect local spending to remain at conservative levels which is likely to impact import volumes.
Experience has shown that it takes six to eight months for the impact of an interest rate reduction/increase to filter through to the market. The 1% reduction in the interest rate announced in early February 2009 is unlikely to be felt until late 2009. Current consumer sentiment and business confidence would seem to further mitigate against a rapid change around in willingness to increase spend in the local economy - at least in the near term.
Question 5 - Which of your infrastructural measures that are in place to cope with business requirements in the industry are most crucial to exports, and what impact does it have when in optimum mode?
User-friendly quote and booking processes, availability of containers where and when exporters require them, rapid processing and availability of shipping documentation, availability of space on our ships when required, regular reliable shipping schedules, easily available cargo tracking information, and proactive exception management for our customers are aspects that we believe are key to be in optimum mode.
Question 6 - Of Safmarine's footprint across more than 40 countries in Africa, what have been the latest developments in the non-containerised service in Africa via the Multi Purpose Service?
Safmarine's MPV (multi-purpose vessel) service has been operating since 2002 and the business has seen phenomenal growth in the past seven years.
Safmarine has responded to customer demand - particularly from the oil and gas and mining industries - by investing in new, modern, multi-purpose vessels which have been purposely designed to meet African conditions.
What makes the MPV service so popular is its ability to accommodate different types of cargo on the same ship. For example, both containerised and non containerised cargo can be shipped to the same destination, at the same time - and on the same ship!
This allows, for example, containers of food and household goods for contract workers to be placed on the same ship used to transport the large, out of gauge items needed for oil and gas, mining or infrastructural projects.
It also allows containers to be shipped to 'non-container' ports, providing access to new markets. Containers can be loaded in almost any port in the world and connected to our MPV services, for delivery to a wide range of West African ports - including those not served by our regular container vessels - all under a single Safmarine bill of lading.
Safmarine presently has 21 chartered MPVs and a further four new MPVs on order for delivery in 2009-2011.
Question 7 - Please elaborate on Safmarine's co-operative measures in terms of the environmental issues with specific reference to the Carbon Trust. Can you elaborate on any long-term plans that may have an impact on exports that have not been activated yet, and do you see this as a growth area in the future?
Two years ago one of our customers, Colors Fruit Holdings - a dynamic, South African-based fresh fruit exporter - decided to embark on a 'Carbon Journey'.
The purpose of the journey was to determine - proactively, factually and credibly - exactly what impact the movement of fresh fruit from South Africa to the UK had on the environment - and then to take the necessary steps to reduce that impact.
Colors, as one of the top three exporters of South African fruit, wanted to show leadership and responsibility on this issue and felt it important to involve all the stakeholders in the supply chain, in order to ensure the accuracy, credibility and acceptance of the Carbon Project's results.
Colors approached Safmarine to become a partner in the Colors Carbon Project in light of the important role shipping plays in getting South African fruit to distant markets.
Safmarine agreed to help fund the project and to provide valuable shipping-related data such as vessel emission data.
The Phase 1 results have been completed and have been verified and accepted by the Carbon Trust (www.carbontrust.co.uk) and are in line with the specifications of the British Standards Institute (www.bsigroup.co.uk or www.standardsuk.co.uk) .
As a result, those involved in the project know what the carbon footprint is of a unit of fruit - and together we can now focus on reducing that footprint.
It is interesting to note that the Phase 1 results confirmed that shipping (freight) contributed less to the overall carbon footprint than either the production or packing processes. Ocean shipping accounted for 15% of the total carbon footprint, whereas production accounted for 22% and packing for 41%. (More details in the Colors Carbon Project document - see Customer category - for more details on search on 'Colors' in quick search)
As at March 13, 2009
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