Importers of tyres are being severely affected by various factors when it comes to moving product from the East to South Africa since the start of the Covid pandemic. The result of this are exorbitant freight rates as well as product shortages, with the consumer ultimately having to bear the brunt. This, according to TIASA (Tyre Importers Association of South Africa).
“The situation is dire,” cautioned TIASA Chairman, Charl de Villiers, “from not enough equipment (containers) in the right places, (containers are regularly stuck in the USA and EU and are not being turned around fast enough), to blank sailing (cancelled sailings to South Africa), due to higher demand from other markets that are willing to pay higher freight rates and whose ports provide higher levels of service delivery.”
According to de Villiers, certain lines have on more than one occasion, decided to ‘cut and run’, giving South African ports a miss and off-loading cargo in Port Louis, Mauritius, due to the length of time they would be required to anchor before being off-loaded.
These factors combined have had a negative effect on cash flow and the cost of landed stock, with shipping lines changing their pricing every two weeks. Worse still, in some cases, importers are finding that should they not be prepared to honour their new rates, once booked and loaded, their containers will be left behind.
“This will ultimately have a massive impact on the consumer wallet, as importers are unable to absorb these excessive charges,” said de Villiers.
“Freight rates pre-Covid were in the region of $800-$1000 per 40FT high cube container. Today, importers are forced to pay anything from $10 000 to $13 000 with a five-day turnaround time, with penalties being levied on top of that, for late turn in. Inefficiencies at our ports are causing delays, thereby affecting the importer’s ability to return a container within the allowable five days. It’s a vicious circle, invariably resulting in additional charges being levied on already inflated prices.
“Shipping lines have also cut down on their fleets, artificially creating a shortage which further fuels the rates. I know of importers currently using refrigerated containers with a smaller load capacity than a 40FT high cube, generally used in the tyre industry to secure a space on a sailing. “In short, while shipping lines are racking in record profits, other industries are suffering,” he added.
Knock-on effect to the sell-out price Since the start of the pandemic, the knockon effect on sell-out prices to both the dealer network and the end user has been hit hard, with increases ranging from 15% to 25%, dependent on segment.
This does not bode well for a struggling economy, particularly as production has not returned to pre-covid levels, which ultimately means that the consumer price has to move to ensure that companies keep their doors open. Also, according to TIASA, raw materials are not immune to these high shipping rates.
“We are already seeing tyre factories in the East using this as an excuse for increases, which will further impact pricing in the future,” explained de Villiers. “Factories in China are also being restricted on their production due to electricity constraints, with some factories only running at 50% capacity, which coupled with shipping rates and increasing raw material prices, only means one thing: prices will continue to rise.
“The consumer will be hit the hardest and this is unlikely to change anytime soon. End users will need to ensure they buy smart, (not necessarily the cheapest). Performance is becoming a key deciding factor when replacing tyres, which, bear in mind, is already considered a grudge purchase,” he concluded.