HIGH-VALUE EXPORT INDUSTRIES
On top of multiple local pressures, ranging from climatic issues to local port efficiencies and social unrests, global shipping costs and reliability have created a challenging business environment for export-focused industries in agriculture over the past two years. During the second and third quarters of 2021, freight prices increased rapidly by more than 150% if average freight rates as those measured by the Freightos container index is considered (see Figure 4.1 below). This was on the back of high energy costs and multiple supply chain disruptions that added to unreliable shipping times (see Figure 4.2). Since then, average shipping rates have followed a downward trajectory gaining momentum during the second quarter of 2022 as demand destruction occurred in a response to high shipping prices. Some of the supply chain issues apparent during 2021 also started to normalise. Shipping costs are however still three to five times what they were during pre-pandemic times and despite averages coming down, selected routes such as those from South Africa to Russia or from South Africa to North America remain persistently high. Our view on future shipping costs is that the downward trend apparent over the past months will continue into 2023 as additional capacity comes online and aggregate global demand eases on the back of higher interest rates. The degree to which prices can go down will, however, to a large extent, be dictated by energy, or more specifically, crude oil costs. With this projected to remain elevated over the medium term (see Section 5 for an explanation on this), we do however expect prices to continue to hold above pre-pandemic levels. The effect of lower costs could however also be more muted than in other parts of the world due to ongoing port ineffeciencies and the dominance of two shipping lines for shipments from South Africa.
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