Global shipping downturn bad news for South African economy

The global shipping industry is facing significant challenges, and while South Africa is faring better than most, trouble in China could see the country facing severe headwinds.

Maritime consultant to the SA Association of Freight Forwarders, Dave Watts, told 702 that in the aftermath of the Covid-19 pandemic, there was a surge in demand for freight services.

This demand was a boon for large industry players like Maersk, with funds from American stimulus packages and freight rates soaring to unprecedented heights.

The company’s share price skyrocketed, and it seemed like a golden era for the shipping industry.

However, this was short-lived, as the industry now faces significant overcapacity and a notable drop in demand. 

Maersk’s share price has dropped by over 36% year-to-date on the Nasdaq Copenhagen. 

Watts said global economic uncertainties, coupled with challenges such as reshoring initiatives and supply chain disruptions, reshaped the industry landscape and led to this downturn.

Supply chain disruptions during the pandemic and the Russia-Ukraine war made importers and manufacturers reevaluate their supply chain strategies, leading to a significant decline in international trade.

For example, countries have returned manufacturing of some products to their own countries rather than outsourcing it to other countries.

While South Africa has seen a decline in shipping volumes as a result, it seemed to fare better than other regions.

However, other countries, notably China, have not been as fortunate as large companies and countries have moved their manufacturing bases out of these countries.

Watts said there has been a significant decrease in local freight rates from China, citing rates as low as $1,350 for a 40 ft container, a substantial reduction from previous levels.

2023 has been a difficult year for the Chinese economy, as the country has battled with a property slowdown, weak trade and an incomplete recovery from the Covid-19 pandemic. 

As South Africa’s largest trading partner, this is also reflected in the South African economy since the country exports a significant amount of commodities to China. Therefore, if China’s economic activity declines, demand for South African commodities will decline.

In addition, decreased trade with China negatively impacts the country’s balance of trade, which weakens the currency and makes South Africa earn less foreign exchange, which can be used to buffer against external shocks and purchase imports.


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