Of donkey carts and ships… a state-owned shipping company sails into view


According to former US President Ronald Reagan, “[t]he nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” Cue the Pre-draft South African Shipping Company Bill, 2022 from the Department of Transport (DoT).

The government is proposing establishing the ‘South African Shipping Company’ (SASCO) through legislation. Marine transport is the heartbeat of the South African economy, with the bulk of South African trade transported by sea through a system of commercial ports. It is estimated that sea-borne trade accounts for between 80 and 90% of South African trade. It is precisely for these reasons that this is a truly awful idea. Aside from the horror that is any state-owned enterprise (SOE), it is not clear why anyone would choose to use this shipping line to move their cargo. In short, here are the economics of the shipping industry, which are remarkably similar to every other industry.

The economics of shipping

People have stuff they need to move across the ocean. They need ships to move the stuff and so they look around at the prices offered by different shipping lines for the route they wish to take. If the load is big enough, the trader could charter a vessel directly from the shipping line and if its not, they would use a freight forwarder to find a suitable vessel for them. Think of a freight forwarder like a travel agent for cargo. They buy space on a vessel and then sell that space to different traders. It’s a very competitive business.

The shipping lines are also fiercely competitive and ships are expensive, both to buy and run, so don’t expect the existing shipping lines to step back for this new entrant. A new Panamax, a ‘typical’ cargo ship, holding between 3 000 and 5 000 20-foot containers will set you back around $35m new (R600m). And you haven’t yet put in fuel or employed a crew. Running costs are around $9m (R153m) per annum (mainly fuel and port costs). Now you have to sell this space to freight forwarders and if your price and service are not good they won’t use you. Let’s look at our other modes of transport.

  • Airline – disaster.
  • Rail – derailed.
  • Roads. Look at the pile up that is the N3.
  • Donkey carts. I’m not joking. Government deployed these in the North-west province, guiding us carefully into the transport revolution of the 1st century. A week in they started breaking down and the supplier denies having ever sold them to the province. They come with a 3-year maintenance plan (the cart, not the donkeys), but given the supplier denies supplying them, they are unlikely to be fixed.

The economics of donkey carts

Determine if there is a demand for donkey carts. If there is, ask yourself what has gone wrong with the infrastructure to require this ancient technology over something more modern.

On a more serious note, donkey carts may actually be the most economically sensible solution when government in the area has completely collapsed and the roads no longer function. What is abundantly clear is that when government makes this decision and then provides a terribly manufactured product, this will not solve the problem.

Donkey’s: 1 North-West Province: 0

If we want to secure our supply chains, then we need to focus on fixing our ports, roads and rail. Shipping lines are already avoiding our ports, particularly Durban. Our own shipping line won’t change this, anymore than Transnet has helped to grow our exports.

How to get companies to use SASCO

If this company is established, how will we get companies to book cargo on their vessels? There are only three options:

  1. Run the company on commercial terms, without political involvement. This not only won’t happen, but actually can’t happen. The only reason the company is being set up is to interfere with the normal shipping market. If this is not the reason, then the normal commercial vessels can be used.
  2. Like all other SOE’s, the government could put subsidies into the system (we end up calling them bailouts when we pretend they can ever be commercially viable and then are not). If we found the magic money tree to do this, we would run the very real risk of our exports being countervailed (duties imposed in order to offset subsidies), by our trading partners.
  3. Impose duties on the use of our ports by foreign-owned vessels only. This too would be in breach of our WTO commitments and actionable by our trading partners. It would only make sense to levy this tax when goods are arriving as we don’t want to tax our exports, but then we would have to use the subsidies for exports to offset this effect or our ships will be sailing empty.

If there really is a strategic need for more South African-owned vessels, then rather create tax and other incentives to register and operate South African owned vessels. It will be cheaper than a shipping SOE.

There will, I have no doubt, be a Shipping Industry Masterplan.

The structure of SASCO

According to the Memorandum on the Objects of the South African National Shipping Company Bill, 2022, since Maersk acquired the South African shipping line, Safmarine, many years ago, South Africa has been without a national carrier. Despite the country being dependent on global trade, cargo carriage is predominantly undertaken by foreign-owned ships. More reliance on foreign governments and companies for the shipping of our essential imports and exports may apparently lead to supply chain disruption, especially during times of natural disaster or international conflict, but relying on a national shipping line, which will almost certainly be shockingly run, does nothing to reduce this risk. Nothing disrupts our supply chains quite like Transnet. You might recall SAA sending a flight to Belgium in February 2021 to fetch vaccines and the pilot almost crashing on take-off. This is not reassuring and yet strangely not out-of-character either. Why do we think a national shipping line will provide any relief in times of natural disaster, when we can’t run an airline, railway or manage our roads, at normal times?

And of course, this is an opportunity for the politically connected to shove their porcine snouts deep into the trough. Again.

Before the Comprehensive Maritime Transport Policy (“CMTP”) for South Africa was developed, the DoT conducted research which identified South Africa as the only country which does not have its own ships in the BRICS. The CMTP provides that the DoT must, in consultation with relevant departments and relevant organs of state, take steps to establish a national shipping carrier as a strategic pillar in the revival of the maritime transport industry hence the proposed statute to establish the SASCO.

So what is in this new proposed statute? It will establish the SASCO with the relevant Cabinet Member in charge of the shareholder rights of the government. The government will wholly own SASCO. The objects of the SASCO are, amongst others, to participate in the carriage of exports and imports as the preferred national shipping carrier, to own and manage a strategic fleet of vessels acquired or built and registered in terms of the South African Ship Register, to own and operate goods clearance, tanker, bunkering, container, bulk cargo and coastal shipping, stevedoring, warehousing and other logistics infrastructure and services. The idea of another SOE with procurement powers is frightening. At least the Public Finance Management Act is also applicable to the SASCO. The SASCO must be financed by the Industrial Development Fund and money appropriated by Parliament.

Of course, the SASCO cannot be liquidated or placed under judicial management unless it is authorized by an Act of Parliament enacted specifically for that purpose, and it may be exempted from the provisions of the Companies Act. The Shareholding Minister will appoint the Chairperson and Deputy Chairperson of the Board, who will exercise the powers and functions of the SASCO. Before appointing members of the Board, the Shareholding Minister must call for nominations by publishing a notice in the national print media. A member of the Board must, upon appointment, submit to the Shareholding Minister and the Board a written statement in accordance with section 75(5) of the Companies Act in which it is declared whether or not that member has any direct or indirect financial interest, which could reasonably be expected to compromise the Board in performance of its functions. A member of the Board must not be present at or partake in the discussion of or the taking of a decision on any matter before the Board in which that member or his or her family member, business partner or associate, has a direct or indirect financial interest.

In terms of accountability, SASCO must submit to the Shareholding Minister an annual report, including its audited and approved financial statements, in respect of all its business within two months of the end of each financial year. The Shareholding Minister must table the annual report to Parliament.

Ordinarily, the setting up of an SOE in the shipping sector should create more competition for the transport of exports and imports, which is good for customers and, hopefully, pricing, stability and availability of services. The obvious challenges are the enduring scourges of corruption and maladministration in SOEs. The significance of shipping cannot be understated since our international trade policy and economy overwhelmingly rely on ships for our imports and exports. To insert a shipping SOE into the mix is too horrible to contemplate.

If you are worried about the creation of a shipping SOE, get hold of us. We understand how to deal with such matters. If you are concerned and don’t do anything, don’t be suprised when this SOE pops into existence.

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