Volatile fuel price raises concern for freight industry

The South African freight industry is not out of the woods yet, according to credit insurance company Coface SA. “Due to the industry’s exposure to a variety of sectors, the industry’s performance remains closely linked to the performance of the country’s economy,” Jayson Naidoo, an industry analyst at Coface, said. “Some areas of immediate concern include the impact from the recent floods on the agriculture, building and construction industries. These industries utilise freight forwarders significantly, and as the rains may have destroyed some crop shipments as well as delayed building contracts, the shift or cancellation of contracts for transporting goods is expected to affect freight forwarders.” In the medium term concerns have been raised about the cost of transport. “Fuel represents more than 40% of transporters’ operating costs and with the expected increase in the petrol price, transport costs are expected to increase as well,” he told FTW. “The volatility of the fuel price is one of the biggest challenges this industry will face in 2011. We are being very cautious and don’t expect to see major growth in 2011. The industry is not out of the woods.” He said while the lower cost of the rand has had a positive impact on the importing of goods, the soon-to-be introduced toll system in Gauteng posed a major threat to the already highly priced competitive industry. “It is not only the South African freight industry that is facing challenges,” said Naidoo. “With increases in the price of fuel and the slow world wide economy freight forwarders across the globe are feeling the pinch.” Naidoo said predictions for the freight industry in coming months both locally and internationally were a migration of some airfreight traffic to the cheaper option of freight forwarding by sea as many companies remain in “savings” mode. “This is likely to be accompanied by less growth in the express sector as speed is compromised in favour of lower costs.” He said more mergers could also be expected between freight companies as profitability is addressed. “The bigger companies are going to come down hard on the smaller, weaker freight forwarders, who are likely to liquidate in the tough trading conditions.”