HISTORIC DECISION BY PORTS REGULATOR WELCOMED GIVEN SA’S ECONOMIC CLIMATE

Tuesday, April 12, 2016
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Local and international players in the South African shipping industry have recently received good news from the Ports Regulator of South Africa in what  may be a historic decision; and one which is welcome domestically given the economic climate.

The Ports Regulator was constituted in 2006. Its role as an independent regulator is to monitor and oversee the activities of the National Ports Authority (“NPA”), which is a division of Transnet. The Regulator’s mandate includes the economic regulation of the Ports system, in line with the strategic development context of South Africa.

South Africa’s port costs, including cargo dues and terminal handling fees, are comparatively some of the highest in the world - specifically in relation to container imports and exports. Costs levied on bulk commodities and shipping lines, however, are below the global norm. It appears from a comment in the draft tariff strategy for South Africa that it is the Regulator’s view that these discrepancies in charges are indicative of a cross-subsidisation of shipping lines by cargo owners. Accordingly, the Regulator’s strategy is to create a fair and sustainable tariffs system which ensures costs are allocated depending on the use of, and benefits gained from, port infrastructure.

The tariffs imposed by the NPA are regulated by the Ports Regulator. Simply put, tariffs are the port costs faced by a shipper, ship owner or cargo owner to make use of a local port’s services and facilities. In August of each year, the NPA applies to the Regulator for approval  to increase tariffs for the following year. The Regulator then submits the proposed increases to a public consultation process, and then uses a specialised methodology to determine tariff increases.

On 1 August 2015, the NPA applied to the Regulator for an average increase of 5.9% for the financial year 2016/2017. After consideration and consultations with stakeholders, the Regulator announced at the end of February 2016 that it had declined the increase requested by the NPA, and instead determined that the appropriate average tariff increase in cargo dues for the year would be an astonishing 0%.

Of further interest, and for the applicable period, although no increase on cargo dues has been permitted, a 3% increase on marine services has been allowed. Full container export tariffs have been decreased by 10%, automotive volume discounts are equalised for all users at a level of 60%, maize receives a 50% discount on cargo dues - capped at 5 million tonnes - and significant discounts have been permitted in marine tariffs specifically for South African flagged commercial vessels, over a three-year period.

A zero percent increase in cargo dues greatly benefits local cargo owners, as the overall effect of the weakening rand against the US Dollar means that, in real terms, South African ports are “cheaper” in dollars. While this is advantageous for foreign shipping lines and export buyers, the South African cargo owner is still generally obliged to pay in Rands.

In 2015, the costs of moving a container through a South African port, including terminal handling charges, was 190% above the global average, as evidenced by a study conducted by the Regulator. Most manufactured goods are exported in containers and so high container costs mean little incentive for domestic manufacturers to export their goods or expand their operations.  Accordingly, the noticeable decrease in container export tariffs will be of assistance to domestic industry.

The automotive industry previously received discounts based on the volume of vehicles shipped. The more vehicles that were moved through the ports, the higher the level of discounts available to the importer or exporter.  Clearly, this provided more benefits to larger manufacturers, while  smaller manufacturers, who might have needed a discount to remain viable, received no or limited benefits. In the circumstances, equalising the volume discounts levels the playing field and promotes fairness between large and small manufacturers in this industry.

The discounts in respect of maize are to the benefit all South Africans. The Regulator recognised that the current drought and food price inflation would negatively affect many South Africans - particularly as maize is part of the staple diet. Therefore this measure is aimed at limiting the impact of the drought on the average South African.

The discounts in relation to South African flagged vessels are a further incentive for ship owners to register their vessels in South Africa. This is instead of the usual registration in countries which offer tax benefits and whose registers are not overly concerned with labour protection and the owner’s nationality. These discounts, in conjunction with our new vessel registration regime and tax amendments, will hopefully assist South Africa in enticing more vessel owners to register vessels in South Africa, and so grow the ocean economy as envisioned by Operation Phakisa, the Government’s current golden child.

The approach taken by the Ports Regulator in respect of the tariffs recognises the difficult economic times in South Africa, and further aligns with Government policies to grow the local economy. The Regulator ought to be congratulated on its well-considered decision.

Note: This article was first published in the Sunday Tribune Business publication on 3 April 2016