As global and local challenges continue to compound wine export woes, industry bodies actively engage with relevant stakeholders to navigate the uncontrollable while sharing ways for exporters to control the controllable.
Representatives of freight forwarder Hillebrand exchanged insights and advice with close to 20 wine exporters at a recent Vinpro workshop. “We wanted to have a proper understanding of the current and future landscape globally and locally at the Port of Cape Town, what the industry is doing to address it, and what exporters can do to mitigate risks,” says Christo Conradie, Vinpro wine business manager.
Wine is the Western Cape’s second largest export commodity, contributing R10.2 billion to the country’s GDP in 2021, and represents close to 50% of South Africa’s total wine sales.
“Challenges such as port congestion, failed equipment, vessels bypassing ports or blank sailing, container shortages and rising freight costs all have an adverse effect on wine exports and cash-flow, as well as imports of goods such as closures, barrels and packaging material to honour orders and contracts,” Christo says.
Port congestion
Although export challenges have only started making headlines over the past few months, there has been a much longer run-up to the crisis.
One of the biggest challenges faced by global and local shipping companies is port congestion. “Because an ocean liner has a set time frame to complete its schedule, any delays at the port that result in port congestion could result in blank sailings, or the liner bypassing the port altogether to keep to its timelines,” says Johan Coetzer, Area Director Sub Saharan Africa at Hillebrand.
Port congestion is quite common in container terminals around the world. “Ports become congested when terminals are booked to more than their capacity, when there are delays due to bad weather, there is a lack of port handling equipment or insufficient reefer plug points,” says Rina Hertog, Country Manager South Africa at Hillebrand. Add to this truck congestion, lack of yard space, industrial action or slow workforce productivity, which create an imbalance in import and export trade.
South Africa has not been exempted from these challenges. “Unpleasant weather conditions such as fog, wind and big waves have always slowed down operations at the Port of Cape Town, while failing and inadequate equipment have not been upgraded over time to improve productivity,” Johan says. Instead, the port lacks two cranes and a one-berth process is intensifying delays.
In the 2021/22 financial year the port lost 96 days in operations as weather conditions and poor equipment led to a backlog of more than 1 000 trucks awaiting processing and teams not having enough time to load during the stack period. This slow turnover resulted in many ships simply bypassing the port altogether.
Growth in demand
Despite these structural challenges, maritime infrastructure is not prepared for the fast-growing shipping volumes as the demand for carrier services continues to grow exponentially.
“There has been a whopping 1 450% increase in container ships over the past 50 years and a surge in consumer spending since the start of the Covid-19 pandemic pushed many ports and shipping companies over the edge,” Johan says.
Global container capacity reached 25 million TEUs by end December 2021 – up 4.5% from 2020 and the largest world-wide container capacity available ever. Carriers have reacted to the demand, making use of every vessel available.
“Although carriers are maximizing their capacity, they also focus on deploying vessels to the strongest demand routes, starting with the Transpacific (East-West/West East) where capacity grew by 31%. By domino effect, this has impacted other and less lucrative trade routes such as those leading to Cape Town, which have not seen any capacity influx besides demand growth,” Rina says.
Adapt to the new normal
“We will have to adapt to a new normal in order to make it through the current and future export challenges,” Rina says. “A lack of space and containers globally, disruption due to political and civil instability and high ocean freight rates will remain essential parameters in 2022, with the next few months being very volatile.”
Delays are here to stay for the foreseeable future. The global liner schedule is currently at an all-time low, with only 31% of all freights arriving on time, compared to 75% in 2019. Vessels are also currently delayed at ports for an average of 7.4 days globally compared to 4.2 days globally and 6.1 days in the Port of Cape Town in 2019. “Russia’s invasion of Ukraine and the USA’s announcement of a ban on Russian oil and gas imports will undoubtedly have a severe impact on the global economy, including delays in exports from South Africa,” Johan says.
Apart from pre-existing supply and demand challenges and lead times, 50% of the current global fleet is not compliant with the International Maritime Organization (IMO)’s new objectives for container shipping in terms of carbon emission limits, which take effect in January 2023. This means that from 2022 onwards most of the existing vessels will need to dry-dock for technical changes in order to comply, and carriers not able to comply in time will most likely need to decrease their vessel speed to reduce consumption and emissions, which will increase the demand for vessels to maintain schedules.
“Ocean rate levels have reached a record high on all routes, whether head hauls or back hauls, and remain steady as global port congestions continue to feed under-capacity in a strong demand context. In the longer-term supply and demand will most likely become more balanced from 2023 and rates may stabilise,” Rina says. Freight costs are now four times higher than before the pandemic and operational costs, including fuel, transport and vessel charter fees will remain high. Demurrage and detention penalty fees (when timelines are not honoured) will also be tighter than before as containers cannot be moved as planned.
Supply-chain stakeholders will have to continue to focus on resilience as buffers and safety stock will be the norm after years of optimisation and Just-In-Time (JIT) thinking. “Paying the lowest possible rates or running a flawless JIT operation is currently not a top priority,” Rina says.
With space being scarce, exporters and importers will adjust their procurement strategies – at least temporarily. This means that they will most likely increase their inventories, anticipate and allow for longer lead times, prioritise long-term contracts and secure capacity. They will also focus on providing reliable forecasts and delivering commitments to protect allocations. “Exporters should take note of this and adapt their mindset and operations accordingly,” says Rina.
As wine is not linked to seasonal exports to the same extent as fruit, there is traditionally not a clear pattern in terms of wine exports throughout the year.
“Pre-planning, scheduling and a commitment on volumes – despite accepting penalties for going over or under – would go a long way towards mitigating some of the risks and building stronger long-term relationships with carriers. Also consider working 24 hours and weekends, keeping safety and security realities in mind,” Rina says.
Behind the scenes
“Although wine-related businesses can adapt their thinking and operations to the new normal in terms of exports and imports, there are still major structural challenges that, if left unaddressed, will impede the South African wine industry’s ability to rebuild and grow its global footprint in a sustainable way,” Christo says.
Vinpro and its industry partners actively engage with the Western Cape Government, the National Department of Economic Development, as well as the Port of Cape Town and Transnet to address infrastructure, equipment and productivity efficiencies. Vinpro representatives also engaged with Maersk via the Western Cape Exporters Club and will have a wine-specific discussion with Rajesh Dana, manager of the Port of Cape Town soon to address the infrastructure and logistical flow within the harbour.
“If we can improve this, we can at least persuade shipping lines not to bypass the Port of Cape Town due to operational inadequacies. While we work behind the scenes, we urge exporters to keep in close contact with their export service provider to fine tune their strategies in terms of scheduling, allocations and containers,” Christo says.
