International supply chain solutions specialist Santova is scrambling to secure vessel space for clients amid a global rise in freight rates, which it is banking on to change its fortunes after its “four lost years”.
CEO Glen Gerber said the year ended February “was not plain sailing”, as abnormally low freight rates, which were “even lower than during the pandemic”, had negatively affected the JSE-listed group.
Revenue fell by R30.2m due to a rapid decline in shipping rates while profit slumped 30.1% to R147.3m. Headline earnings per share decreased 20.1% to 123.77c.
Recovery
However, Gerber said Santova was on a path to recovery after four “lost years”, characterised by three years of abnormally high earnings obscured by Covid-19 and last year’s depressed earnings due to low freight rates.
He said the recent tensions in the Red Sea were assisting the industry “to a limited extent”, while the recent increase in freight rates offered it “some respite”.
“It’s only recently that we’ve seen an adjustment to freight rates, which will have a positive impact as we move forward,” Gerber told analysts in an analyst presentation.
Ocean freight rates have been on an upward trajectory since April due to tensions in the Red Sea, solid cargo demand in China, a shortage of ships and regional port congestion, which continue to present significant challenges.
At the end of May, the Shanghai containerised freight index showed a 12.6% increase in spot ocean rates, the 10th consecutive week of rising rate levels.
In its recent annual report, Santova outlined that having to sail around Africa instead of through the Suez Canal meant seven to 10 additional sailing days at higher freight rates, which was favourable to forwarders, which could improve earnings through greater margins.
“Unfortunately, consumers will end up paying for the disruption,” said the chair’s and CEO review.
While the Durban-based company, which uses its platforms to assist its customers in sourcing and distributing products worldwide, are set to profit from the rise in rates, the group still faces an uphill battle to secure cargo space on vessels.
“The problem now is at these incredibly significantly increased rates, we can’t find space on vessels. There are a lot of rollovers and a significant number of delays to shipments,” said Gerber. He added that some delays were as long as five weeks.
“So it is a tough trading period at the moment, volumes are down simply because we can’t get space ... we will find the space and we will probably be shipping at higher rates, which is favourable for us,” he said.
Notwithstanding its Asia, Europe and UK operations, in Africa alone Santova imports from 85 countries and exports to 114. Its diverse client base spans the chemicals, textile, pharmaceutical and manufacturing sectors.
There is a sense of exasperation in the market because of the steep freight increases being passed while sea freight capacity has been reduced.
— Denys Hobson
Denys Hobson, head of logistics for Investec Business Banking, said as sea freight costs soared and capacity dwindled, the trade and logistics market had become increasingly “frustrated”.
“There is a sense of exasperation in the market because of the steep freight increases being passed while sea freight capacity has been reduced,” Hobson said in a note, citing an increase in the number of blank sailings, continuous operational constraints across SA ports and steep freight rate increases.
“Unfortunately, it’s starting to feel like we are in a similar position to when we were at the peak of Covid.”
According to Western Cape-based export industry NPO The Exporters Club, the rise in global shipping rates back to pre-pandemic levels places a burden on SA importers and exporters.
Last week, it said that with Maersk and other carriers revising their financial outlooks upwards, the cost of shipping containers was expected to stay high for the foreseeable future.
“Securing space for your shipments may be difficult until July/August 2024,” it warned its members, including banks, large retailers and logistics companies. “Brace yourself for potentially even higher rates.”
It said some shipping lines did offer “diamond tier” options with guaranteed space but these came “at a premium cost”.
Air cargo rates have also benefited from the demand for time-sensitive shipments.
Santova’s share price closed 0.75% lower at R7.90 on Friday, having risen more than 9% in the year so far.
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