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World’s highest port costs drive trade from SA

Transnet charges more than double the global average to dock a container vessel in Durban.

(Bloomberg) South Africa’s port in Durban charges more than any other major dock in the world, forcing up costs for companies such as Sappi and Mondi and undermining government attempts to boost exports and create jobs.

State-owned Transnet SOC Ltd charges an average container vessel $182 151 to dock in the eastern city, according to the Ports Regulator of South Africa. That’s more than double a global average of $86 251 and the highest of 100 top harbours.

Things may get worse next year with Transnet’s application to increase fees for port services and facilities by 18%. Combined with the rand’s strength and rising labour and energy costs, such charges are limiting profits at exporters including Sappi, the world’s largest maker of glossy paper, rival Mondi and ArcelorMittal South Africa Ltd. (ACL), the continent’s biggest steelmaker, said Mohamed Kharva, an analyst at Nedbank Group Ltd., the country’s fourth-largest bank.

“Companies such as Sappi are plagued by higher costs and don’t have the pricing power to pass this on to customers,” Kharva said in a telephone interview from Johannesburg. “It’s extremely negative for the company. Their profitability starts to diminish and that doesn’t make it a great investment.”

Kharva recommends that investors sell shares of Sappi, Mondi and ArcelorMittal.

The rand has climbed about 33% against the dollar since January 2009, wage increases averaged 7.5% in the first half and power costs are up 26% this year.

Unreliable services

Hamburg-based MACS Maritime Carrier Shipping GmbH & Co. is reducing its business in South Africa because of rising costs and the unreliability of port services, Managing Director Felix Scheder-Bieschin said in a telephone interview from Cape Town. Johannesburg-based Sappi is considering using Maputo port in neighboring Mozambique for exports from its Nelspruit mill located in the northeast of the country.

“It hobbles the economy of South Africa,” Glenn Adriaanse, export-services manager at Sappi Trading, said in a telephone interview from Durban. “These costs all add up and eventually filter down to the bottom line.”

Sappi, which shut mills in South Africa and Switzerland in the past year, posted an unexpected loss of $0.13 a share in the three months through June, the company said August 4.

Exporters and shippers say a lack of competition contributes to high costs. More than 90 percent of goods sold overseas pass through South Africa’s harbours, and the National Ports Authority, a unit of Transnet, manages all ports except Richard’s Bay Coal Terminal. Durban, the continent’s busiest, represents 61 percent of South Africa’s container cargo.

Near-monopoly control

Because of its near-monopoly, Transnet can charge cargo dues, a fixed cost on containers that pays for road and rail links and lighting at the harbours. Other ports tend to charge only for work on so-called wet infrastructure, such as breakwaters and dredging.

Productivity at South African ports also is lower than at other major docks, resulting in congestion and delays, according to a study published by the Ports Regulator in September 2010. Cranes at Durban port move an average 23 containers an hour, compared with 94 in Antwerp, Belgium, the study said.

“We’re paying first-class prices for economy-class services,” Scheder-Bieschin said. “We see cost and efficiency as a threat to our business.”

Tau Morwe, chief executive officer of the National Ports Authority, wasn’t available to comment for this story, his assistant Nomsa Dlamini said. Mayihlome Tshwete, spokesman for Public Enterprises Minister Malusi Gigaba, who oversees Transnet, didn’t respond to two e-mails seeking comment.

Falling Exports

Export growth already is suffering, failing to keep pace with expansion. Goods sold abroad, excluding gold, dropped to 18% of gross domestic product last year from 21% in 2005, the central bank said in a June report.

South Africa can ill afford to lose trade. The government estimates the economy must expand 7% annually for a decade to meet its target of creating 5m jobs and slashing the unemployment rate to 15% from 25.7%. The central bank forecasts economic growth of 3.7% this year and 3.9% in 2012.

“If they charge what they like, they’ll end up putting exporters out of business,” said Peter Newton, chief executive officer of Cape Town-based Seaboard International Trading Ltd., which ships fruit and vegetables to mainly European customers. “It’s the straw on the camel’s back.”

Expand Capacity

The government is trying to address some of these concerns. It created the regulator in 2007, which approved a 4.5% tariff increase for this year, less than half the 12% sought by the National Ports Authority. Transnet also is spending R31bn in the next five years to expand capacity at its container terminals by almost a third.

“Our job is to ensure there’s appropriate pricing,” Riad Khan, chief executive officer of the Ports Regulator, said in a phone interview from Durban. “Inefficiency in the port system is a brake on the economy and pricing can contribute to that.”

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