Abstract
South Africa-based shipping company Grindrod has stated that it expects
earnings to fall in 2009.
However, the company announced a profit increase
in 2008, and we believe that it is well placed to
weather the current
economic downturn. Grindrod has diversified interests and, in spite of the
current
climate, is pressing forward with expansion initiatives. Financial
results released in February 2009 show
that net income for the company was
up US$217mn in 2008 on 2007' s figure of US$120mn. The
company' s revenue
has also risen. In 2007, revenue was US$1.8bn and this rose to US$3.4bn in
2008.
Despite this growth, Grindrod is cautious about celebrating, with
Engineering News reporting that the
company' s CEO, Alan Olivier had warned
that difficult times lie ahead in all markets including shipping.
BMI
echoes this fear and notes that all shipping companies have been struggling in
the current economic
downturn, which has seen trade volumes plummet.
In this latest South Africa Freight Transport Report, BMI concludes that
freight carried across all modes
in South Africa is set to increase at an
annual average rate of 2.7% over the next five years, just behind
the
general rate of GDP growth. Various factors support this prediction. The
global recession is taking its
toll, with the economy due to contract by
0.3% this year and recover slowly after that. We now expect the
economy
will grow at an annual average rate of 2.8% across the 2009-2013 forecast
period, with foreign
trade rising by 13.7% a year in value terms.
Government policy favours resumed investment port
development, but this is
taking time to feed through. Before the downturn started in the second half
of
2008 (H208), South Africa’s rate of economic expansion had been
spurred by domestic consumption,
investment growth, and international
demand for commodities. These resulted in strong demand for
transport
services. Export shipments of gold, platinum group metals, chrome, manganese,
and coal
necessitated increased freight services. Looking forward these
forces will take some time to re-asserts
themselves. South Africa’s
plans to foster regional expansion in southern Africa, which entails
improving
and extending the transport network, is also a potential plus
factor.
BMI believes the global slowdown and domestic problems, such as
power shortages, are feeding through
and having a negative impact on the
transport sector on the short term. The overall freight volume
shipped by
road is forecast to increase by an annual 2.7% for the rest of the review
period. We assume
that adequate dockside facilities and port throughput
will not constrain the growth of container trade, with
volumes weaker on
the short term as a result of the recession. BMI expects maritime freight
carried to
grow by an annual average of 2.9% in 2009-2013. We expect
airfreight to edge ahead of both these two
key modes, with growth of 3.4%,
while pipeline throughput at 2.7% a year and rail at 2.6% will bring up
the rear.
South Africa’s overall freight rating, at 59.9 out of 100,
is above the average for the Middle East and
Africa (MEA) region. It
scores well in terms economic factors and in its regulatory background, but
its
record in relation to historic and forecast growth in foreign trade
and in transport remains relatively weak.
By the very nature of the
industry, many of the problems associated with reforming transport
network,
facilities, and services have to be considered over a medium-term
time frame.
According to our latest estimates, the total value of
transport and communications GDP will rise to
US$35.3bn in nominal terms
by 2013, representing 8.2% of South Africa’s GDP.
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