Juggling act not over for SA retailers
By Denys Hobson, Investec for Business, Head of Logistics. Loadshedding, the weak Rand and supply chain headaches are creating a gloomy outlook for the retail sector in SA.
By Denys Hobson, Investec for Business, Head of Logistics. China’s import and export trade data for April points towards a slow-down and in many aspects a reflection of what the global economy is experiencing from a growth perspective. This outlook doesn’t bode well for air and sea freight carriers and it’s no surprise that merger and acquisition activity within the supply chain sector is currently buoyant. This, coupled with the market fluctuations with the Rand reaching a record low as the dollar strengthened – means the juggling act is not over.
Consumer buying power
Consumer buying power has been constrained over the last several months. Inflation and interest rates remain elevated and this has had a direct impact on consumers disposable income. As disposable income is eroded it forces consumers to be more selective with their basket of purchased products.
This means that retailers are either having to discount a wider range of products to entice consumers to buy their products or alternatively products could become obsolete. Either way, the current trading environment certainly places pressure on retailers’ revenue growth and their bottom lines. The weaker Rand is also giving retailers a major headache, and this will place further pressure on the landed cost of imported goods and working capital.
Loadshedding has forced retailers to burn millions of litres of diesel to keep operating, this further adding on to “why” the need to increase prices. In addition to other inflationary related input costs, provision for diesel or increased capex spend for alternative energy sources has to be accounted for.
This is a reality that many retailers have had to accept with no reprieve in sight. In fact, apart from the financial considerations and reduced trading hours for many retailers, this will have an impact on future growth plans.
While China continues to try boost economic and trade activity, the rest of the globe continues to battle with economic constraints which also impacts the rate at which the Chinese economy grows. The anticipated rebound from China may take longer than initially anticipated post the lifting of the Covid restrictions. The global economy needs China to be buoyant as they are a large trading partner with numerous countries.
Supply chain prognosis
The ocean freight market has taken a dramatic turn over the past 12 months and the outlook doesn’t appear to be very exciting for shipping lines from a volume and revenue perspective. Competition among carriers to attract volumes remains strong and at the same time they need to find new revenue generation avenues as well as improve efficiencies and contain costs.
Earnings for this financial year are set to decline dramatically compared to the past financial year. This comes at a time when a significant amount of new build vessel capacity will be deployed over the period 2023 to 2025. This is positive for importers as rate levels are expected to remain range bound with no major rate increases as was the case during the chaotic Covid period.
The rail service in South Africa remains problematic and operational inefficiencies and constraints such as cable theft has made the rail service unreliable. This situation has partly created additional pressure on the ports and our road infrastructure, as too much cargo is moving via road instead of via rail.
The airfreight market remains under pressure from a volume growth perspective. Market indications for the coming months is for the volume to remain subdued. So, there is plenty to navigate and take into account. It is best to have an import partner that can help you pre-empt and plan around all the economic challenges that can have both a positive or negative impact on your business.
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