KwaZulu-Natal still on the receiving end

KwaZulu-Natal, which according to Statistics SA is the second largest economic hub in SA after Gauteng, was hit by more rain last weekend to deal a third blow to its frail economy.

The region was still suffering the impact of the social unrest in July last year when the devastating floods occurred in April. A second wave of heavy rain which hit parts of the province over the past weekend has created even more damage to roads, buildings and other infrastructure.

The three punches are bound to have an effect on SA’s economy overall.

Stats SA reported in March 2019 that KwaZulu-Natal was responsible for R16 of every R100 generated by the national economy.

In addition, the Durban harbour is the most important in SA, handing some 60% of imports into SA. Consequently, roads leading into and through Durban are just as important.

Feeding trade

Andrew Pike, head of Ports, Transport and Logistics at law firm Bowmans, says the disruptive weather conditions in KwaZulu-Natal have been so bad that many businesses operating in the supply chain declared force majeure under their contracts, maintaining that the floods were an act of God and accordingly they were unable to perform in terms of their contractual obligations.

“For various legal reasons – including the way many contracts had been drafted – not everyone could rely on force majeure or any common law equivalent, meaning that some people in the supply chain were saddled with the costs which were being passed up and down the chain.

“Whilst the damaged infrastructure and initial chaos are slowly being restored to normality, the direct and consequential costs to both KwaZulu-Natal and the wider South African economy are huge.

“A full recovery will be long, arduous and arguably never complete,” says Pike.

One of the major consequences of the storm damage was the delay in moving many thousands of containers out of the Port of Durban.

All shipping lines that make their containers available for use by cargo importers and shippers will typically include in their tariffs a certain number of days of use as a “free period”. Thereafter, storage or detention costs start mounting on the party in possession of the container. This would be an uninsured loss, and where a cargo owner has several containers in its possession, these costs can mount up very quickly.

Insight

Bowmans has a dedicated team looking at the ports, transport and logistics sector to assist clients with related issues in an industry that involves transactions of billions of rands. It publishes regular statistics and research about harbour operations around the world, which qualifies it to answer pertinent questions.

The first question that comes to mind is the operational status of the Durban port before the recent floods.

“South African ports have received poor international ratings recently, with a World Bank study published in 2021 [Container Port Performance Index 2020] placing Durban in the bottom three out of 351 ports in the world, based on both administrative and statistical approaches to the study,” says Pike.

“Problems have continued into early 2022, with difficulties in delivering containers to the terminals and evacuating them to the hinterland,” he adds.

“Constraints have included Covid-19 issues, Transnet Freight Rail having insufficient capacity and delivering and evacuating far fewer containers than they used to, truck congestion in the Bayhead and Maydon Wharf area causing delays to both containers and dry and liquid bulk cargoes, inadequate infrastructure investment such as the cancelled berth deepening project, and the lack of capacity within Transnet.

“Having said that, prior to the floods, it was reported that Durban Container Terminal’s Pier 1 handled its highest annual volumes yet achieved, having moved a total of 689 246 20-foot equivalent units in the year to end March 2022. At the time, the terminal was said to be operating at 98% capacity.”

Unfortunately, the floods exacerbated congestion and access to the port, by both road and rail.

Recovery efforts

Pike says the port has been working hard to repair flood damage. “The port did well to clear debris – a serious hazard to navigation – from the port within a couple of days.

“However, Bayhead Road was badly damaged and remains constrained, with only two out of the usual four lanes operational. This is causing huge delays to trucks delivering or evacuating containers,” he says.

Pike notes that the damage to roads increased delays to “anything from three to 12 hours”. Problems are evident in the Maydon Wharf area and also impeding logistics operations for the dry and liquid bulk terminals in the Point area.

“After the floods, we were hearing estimates of 8 000 to 10 000 delayed containers, although this has probably improved quite significantly by the measures the port has put in place,” says Pike.

“The damaged warehouses and container depots have largely recovered from a damage point of view, but their operations are being hampered by the congestion levels [due to damage to roads].”

Silver lining

Maybe even these storm clouds had a silver lining. Pike says the flood damage will certainly have focused the port on the issues that need to be addressed.

“The pre-flood weaknesses, such as port access, have been exposed,” he says.

“Transnet has recently put out Durban Container Terminal 2 to tender with the idea being that a major private sector operator will take over operations and inject capital into port infrastructure and superstructure.

“I expect that one of the major world container terminal operators will be awarded the tender and will be given a relatively free hand to introduce new technologies and management systems, as well as infrastructure and equipment upgrades.

“A similar tender has been put out for the Port of Ngqura.

“In addition, government is in the process of uncoupling [the] Transnet National Ports Authority from Transnet, which will create greater independence for the Ports Authority. It should bring about greater competition in the ports and permit the authority to make greater investments into the ports,” says Pike.

“Assuming the privatisation tender gets awarded, it promises to be the most significant step for many years to improve Durban’s efficiencies and start driving shipping and logistics costs down.

“There is still some way to go, but this privatisation initiative gives me a renewed sense of optimism,” he says.

More damage

Last weekend’s rain – the SA Weather Service reported that some stations in the area reported 200 millimetres of rain in 24 hours – brought more trouble. More roads and buildings were damaged, including a block of flats.

ReliefWeb reported that 443 people died in KwaZulu-Natal in the first floods and over 40 000 were reported missing. Nearly 4 000 houses were destroyed and more than 8 000 were damaged.

A National State of Disaster has been declared in response to the floods and landslides. Rescue teams have been deployed to help people.

The Durban Chamber of Commerce and Industry notes that the high intensity rainfall over the weekend has impacted restoration and disaster recovery efforts. “These devastating rains come after April’s floods that left severe damage to infrastructure, homes, and businesses and claimed the lives of over 400 people.

“This latest flash of rain, which can only be described as distressing, poses a serious and real challenge for businesses in eThekwini as businesses are already fragile and are hanging on by a thread,” says Palesa Phili, CEO of the chamber.

“As of [Monday], major road and highway networks are flooded again. This includes the M7, M13, Umgeni Road, Higginson Highway and the South Basin, to mention a few.

“Rehabilitation and maintenance of key infrastructure such as roads, canals and storm water drain systems, especially in the south of Durban where the most damage occurred, is an urgent issue as this area is an operational area.

“This is the appropriate time to activate contingency plans identified in our meeting with the president on the 15^th of May,” says Phili.

She says  the chamber is leaning on government to be swift in its response times and to attend to the road infrastructure urgently, so that employees can commute to work, cargo can move as scheduled, and the economy experience minimal disruption.

The chamber also notes that criminals are taking advantage of the chaos, with sporadic looting being reported.

Read: KZN floods: Key lessons

The KwaZulu-Natal provincial government estimates the damage to exceed R1.9 billion, while insurance companies told Moneyweb that they are not able to provide any estimates yet as some areas are still inaccessible.