Impact of COVID-19

on Maritime Industry

Lecture Outline

• Maritime Economy in South Africa

• Global Overview

• Shipping & Exports

• Clearing & Forwarding

• Ship Building and Repairs

• Oil & Gas

• Ports & Terminals

• Proposals for Consideration

Maritime Economy in South Africa

Global Overview

• The sulphur regulation from IMO that came into force on 1 January 2020 took the centre

stage in the shipping industry at outset of the new decade.

• Four months on, the spotlights have turned to the coronavirus and the OPEC+ oil price

war.

• The outlook for global economic growth remains bleak. It is anticipated that this will be

worse than the SARS outbreak in 2002 and is anticipated to be worse than 2009 global

recession.

• The West Texas Intermediate (WTI) reference oil future drew headlines as it crashed

into negative territory at $-37.63 per barrel on 20 April 2020.

• The sliding oil prices have driven down bunker fuel prices, which hold mixed

implications for the shipping industry.

Global Overview…. continued

• From a shipowner’s or charterer’s perspective, the lower bunker prices provide a

glimmer of hope in bleak times.

• Bunker suppliers must now supply bunker fuels at a fraction of the price seen four

months ago.

• The International Energy Agency (IEA) is projecting oil demand to collapse in the

second quarter of 2020.

• The massive supply-demand imbalance has led to a steep uptick in crude oil stockpiling,

which will continue to drag on the oil product prices in the months to come.

• It is anticipated that the recovery from the low depths thus far reached will be far from

the rate of the descent from the peak

Impact on Shipping & Exports

• The international shipping industry is responsible for the carriage of around 90% of

world trade.

• A report published on April 8 by the World Trade Organisation (WTO) says world trade is

expected to fall by up to 32% this year as a result of COVID-19.

• SA exports over 200m tons of dry bulk cargo through Richards Bay, Saldanha, Ngqura

Ports.

• The nearly 100% decline in April new-vehicle sales and export figures serves as

barometer of the impact of Covid-19 on the domestic automotive industry.

• The damage could be permanent and open the way for upcoming rivals such as

Morocco and more established centres like Thailand to steal market share.

Impact on Shipping & Exports

• With disruptions in global

trade, South Africa will suffer

billions of Rands in revenue

losses.

• Of the R229bn in customs

tax revenue, 43% was

through Durban Harbour.

• Loss of customs revenue

will hit the fiscus

significantly.

Source: South African Revenue Service & National Treasury: 2019

Impact on Clearing & Forwarding

• Dry bulk ports are operating, albeit at reduced capacity.

• Most companies had to ask employees to use their leave, some have been sent home

to seat out the crises at no pay

• Businesses with one office, say in Durban, severely affected.

• Dry cargo is now picking up and is reaching 90% capacity.

• Richards Bay is operating optimally.

• Container ships are operating not optimally.

• Tankers are most severely affected.

• The overall decline on the clearing and forwarding is expected between 20% & 30%.

Impact on Ship Building & Repairs

• No production or repairs of ships from 27 March until 08 May 2020 when the port opened.

• Companies relying solely on ship repairs had to retrench workers.

• The stipulation that companies must limit capacity to 50% of the workforce is not practically

feasible.

• Since 99% of the ships are foreign owned, with foreign crews not allowed, the ships are

deterred from doing repair work in South Africa.

• According to a survey by the South African Boat Builders Export Council (SABBEX), by 06

April 2020, boatbuilding companies had already begun retrenchments.

Impact on Oil & Gas

• The world has returned to oil demand levels last seen in the 1990s.

• The world’s top oil producers in the OPEC+ alliance on 12 April pulled off a historical cut global oil

production by nearly 10%, starting on 1 May.

• Abrupt shut-downs partially damage oil fields and restarting them once demand returns will take

longer.

• With the oil and gas discoveries off the SA coast, for example, the ENI project, the low oil price

create viability concerns. If these projects are no longer viable, the result being loss of FDI and

jobs. (but I had discussion with Eni who confirmed that they will proceed with the project).

• Liquefied natural gas (LNG) storage and regasification terminal to be established at the Port of

Richards Bay by 2024 may be affected. The energy dept to urgently conclude the IPP process

for this project.

ER236 License

ER236 – South Africa Off-shore • Activity performed up to 2019: one 2D and two 3D

seismic surveys have been acquired and

interpreted. G&G studies and EIA preparation

have been done.

• Environmental Impact Assessment authorisation

(EIA) requested for the drilling up to six wells: 3

NFW and 3 Appraisals, depending on the result of

the first well.

• EIA authorisation from DMRE (Department of Mineral

Resources & Energy) received on 26th August 2019.

• Second Renewal for exploration period has been

received from PASA on 3rd September 2019. Expiry

date 2nd September 2021. No drilling commitment

during this period.

Impact on Ports & Terminals

• Cargo volumes have decreased sharply – tankers are most severely affected.

• Decreased consumption of energy fluids and dry bulk has affected respective

terminals.

• Since borders are closed, crew changes are not possible, so ships are deterred

from calling into SA ports.

• Automotive exports have plunged as a result.

Impact on dry bulk market

• We now forecast freight rate to fall 23% in 2020. However, supply-side effect isexpected to support freight in the second half of 2020

Proposals for Consideration

More rapid re-opening of the economy, including the ports is now urgent.

Support packages around reductions in port duties, credit management measures,

increased co-funding for manpower and productivity support schemes.

Intensive 5-year ship building programme, for example, 3 patrol vessels for the navy, 10

tugs for Transnet, 2 protection vessels for Fisheries, 2 dredges, 3 research vehicles for

DEA.

Fast-tracked intensive ship repair programme for long overdue maintenance on , for

example, Transnet vessels, 4 fisheries protections vessels, 3 navy frigates

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5 Fasttrack the establishment of a South African shipping company to increase capacity

Proposals for Consideration

Transnet need a second tipper in Richards Bay to increase capacity

Fastrack the decision in terms of Gas to Power project in Richards Bay.

Fastrack the finalisation of refinery project in the Richards Bay Industrial Development

Zone.

We need to revisit Operation Phakisa – a workshop to be held to report on progress to

date.

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We urge GCS to conclude all surveys off the SA waters with immediate effect.10

Proposals for Consideration

The sulphur regulations should be delayed and become effective in 2022.

Carbon tax for South African mining companies to be suspended until 2022.

The new mining charter regulations require SA owned ship to transport minerals must be

enforced urgently.

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