Freight rates draw fruit industry’s ire | Article
The news that some of the world’s leading shipping companies posted record profits in the first quarter of 2022 has not gone down well in South African fruit circles.
Justin Chadwick, chief executive of the South African Citrus Growers’ Association (CGA) was one of the most vocal critics, pointing out that shipping companies and other parts of the supply chain are making excessive profits at a time when returns to producers are plummeting.
Last week, AP Moller-Maersk announced record results for the first quarter of 2022 with revenue for the quarter up 55% year-on-year to $19.3 billion.
Chadwick told citrus growers at a conference at Fruit Logistica in Berlin in April that the seemingly uncontrolled rise in freight rates posed a significant threat to exporters.
“There have been a lot of complaints about the arrogance of shipping company management, which is a take it or leave it approach, and who charge what they can because they can, not because they should,” Chadwick said.
“This week, a major shipping company released its astonishing results – to much fanfare, it bragged about its abnormal profits and its “ability to help customers overcome logistical challenges”. The biggest logistical challenge, this are the freight rates that are theirs!
“Most fruit exporters won’t survive at current freight rates – but those who are on the long run are finding ways to survive – and those ways are likely to exclude those who are causing the problem.”
New CGA Chairman Hannes de Waal also recently singled out sharp increases in freight rates as the biggest threat to the future of the South African citrus industry.
Chadwick said container shortages – along with congestion at many ports around the world, including the United States and China – was the driving factor behind the high rates.
“Containers sit still longer than they travel – some say only a third of containers are rotating – others say 50%,” Chadwick said.
“Regardless of the exact figure, when congestion eases, more containers will be in circulation and supply constraints will ease. Additionally, reports indicate that many new vessels and containers are being built. J imagine that most senior executives in shipping companies receive profit-based bonuses – the higher the profit, the better the bonus.
Chadwick was concerned about the long-term sustainability of the supply chain and cautioned against chasing short-term profits.
“What happens when congestion eases and new ships and containers come to market? Chadwick said.
“Freight rates could drop and profits could become losses. Meanwhile, the management of the shipping companies have collected their bonuses and can leave for greener pastures.
“Shipping line owners or shareholder representatives need to read this unfolding story – and think carefully about how to incentivize management to pursue short-term profits at the expense of long-term sustainability.”
Chadwick also noted that the problem of rising costs does not lie directly with shipping lines, with supply chain operators benefiting.
“Throughout the chain, those who invest in the assets do not necessarily manage the assets or set the prices and terms of engagement. In many cases, cold storage, transportation, distribution warehouse management and other supply chain players are taking advantage of the logistical chaos and raising their rates – because they can,” Chadwick said.
“Again, the owners and shareholders of these assets need to carefully monitor what management is doing. The only group that both owns and manages its assets are the citrus growers – and they’re here for the long haul. »
Chadwick’s opinions are shared by leading producers and exporters in the industry. One of the main exporting producers said that the current sharp increase in freight rates and unprecedented profits should be the subject of global trade investigations against unfair practices.