As any exporter knows, winning a supply contract can demand squeezing margins uncomfortably to remain internationally competitive. It follows that when transport costs increase sharply, an exporter’s competitive edge can vanish – even though all other costs remain stable. Such a situation currently threatens many South African exporters, due to the exorbitant cost of moving goods through our country’s ports.
PRICEY YET POOR
A port benchmarking study, conducted in 2010 by the Ports Regulator of SA, suggests that our ports are considered high-cost, low-performance facilities. Of the 12 international ports selected, Durban was ranked the most expensive, yet it was less productive than several other ports in the survey.
For example, in 2008 Durban achieved 23 crane container moves per hour, whereas Antwerp in Belgium recorded 94; Santos in Brazil 60, Rotterdam in the Netherlands 58, Laem Chabang in Thailand 38, and Klang in Malaysia 35. And two years later, Durban’s figure had actually declined to 22. In 2008, the average container vessel turnaround time was 72 hours in Durban – higher than Los Angeles at 61, Rotterdam at 40, Santos at 38, Long Beach in the US at 24, and Laem Chabang at 12. According to the Ports Regulator, however, Durban has improved these figures since then, reducing the figure to 47 hours in 2009 and 45 hours in 2010.
South African ports have inherited numerous performance and pricing problems. These include a lack of competition, inefficient pricing across all eight commercial ports, an unclear and partly unjustified pricing methodology, a gross skewness of port revenues compared with costs, and insufficient information provided by the port authority to allow for a fair assessment of individual tariffs.
South Africa’s attempts to improve trade competitiveness partially lie in targeting below-inflation adjustments. From 2005 to 2008, the Transnet National Ports Authority (TNPA) tariff increases in cargo, marine and port dues were consistently below the country’s consumer price index (CPIX).
In 2009 and 2010, however, the increases were above the inflation rate. In other words, there was an increase in both the nominal and real cost of moving cargo through our ports. The Regulator uses a revenue requirement methodology to assess TNPA tariff applications, and approved an increase of 4,42% in 2010/11.
The allowed revenue for 2010/11 should have been R6,02 billion, but TNPA expected R6,59 billion, implying an over-recovery of R564 million. The Regulator determined that 34% of additional revenue was reasonable,so adjusted the tariff increases to spread the impact of over-recovery over two tariff determinations.
Despite significant tariff reform, cargo dues, which provide 70% of TNPA’s total income, continue to be the most controversial port charge. Although TNPA proposed a tariff increase of 11,91% in 2011/12, several cargo dues increases were vastly more than this: 117% for chrome, 204% for vermiculite, 612,37% for wood chips, and 864,6% for molasses and products thereof.
Sappi also pointed out that wood pulp was charged at R41,09/t whereas hot and cold rolled steel coils were charged at R20,92/t, and recommended that cargo dues on break bulk be flat-rated. TNPA responded that there was a need to re-align tariffs on “certain commodities which were not aligned to similar commodities in the same industry utilising the same operating methods”.
The proposed tariff increases in 2011/12 arguably show these intentions, and include significant increases in the port prices of several agricultural bulk and break bulk products. However, TNPA did not provide enough information to allow the Regulator to make an assessment of individual tariffs. In the end, for 2011/12, the Regulator approved an overall tariff increase of only 4,49%, well below the proposed increase of 11,91% and slightly below the mean annual inflation rate of 5%.
In its 2012/13 tariff application, TNPA has converted its revenue requirement into a tariff increase of 18,06%, triple the SA Reserve Bank’s upper band for inflation-targeting – a CPI of 6%. If TNPA includes the revenues from its real estate, its increase would translate into a significantly more palatable 12,90%. It argues, however, that these revenues should not be included.
Is the revenue generated from an 18,06% tariff increase justifiable? To answer this, the Regulator has to consider several factors. One is TNPA’s proposed 10-year R8 billion development plan. If higher investment expenditures require higher revenues through increased port prices, then the underlying need for the investments, the cargo and capacity forecasts, and the timing of these projects, could all be questioned.
Although a price increase of 18,06% would be applied equally to all port cargoes, their ability to absorb it is certainly not equal. Typically, lower valued agricultural bulk and break bulk products are less able to absorb increased port costs than higher valued containerised cargoes. Ultimately, the Ports Regulator of SA will need to make a tough decision on the best way forward, and we will have to live with the consequences.
• Source: Port Pricing in South Africa (2011) by Mihalis Chasomeris.
• Contact Mihalis Chasomeris on 031 260 2575 or email [email protected] or [email protected]
• The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.