South Africa Freight Transport Report Q3 2011

Report Summary

With austerity measures taking hold across Europe and continuing high employment in the US, shipping levels may slow their growth considerably. However, South Africa looks set to enjoy a relatively successful year in the rail and maritime freight sectors.

The launch of the Shaka Express service by France's CMA CGM will link Asia, the Indian Ocean Islands and South Africa. This new route will offer the line exposure to the growing trade between South Africa and Asia, further highlighting South Africa's developing role in the global container shipping sector. In BMI's view, the service will enable CMA CGM to tap into the growing trade between South Africa and Asia.

In global terms, operators in the dry bulk and box shipping sector are feeling the result of the decline in rates on their Q1 results. There is light at the end of the tunnel, however, with the concerted effort on behalf of majors in the box shipping sector to raise rates on the Asia-Europe trade route from June 1 2011 and rates on the dirty tanker index ticker up on the last day of trading. Dry bulk players, however, specifically Capesize operators, could face further rate declines as Vale's Chinamax fleet starts to float online.

Headline Industry Data

• 2011 Richards Bay throughput growth forecast is 0.99% and is set to average 1.52% over the mid-term (2011-2015).
• 2011 rail freight growth forecast is 17.88%, and is set to average 6.51% a year to 2015.
• 2011 total trade real growth forecast at 8.75%, and is set to average 7.35% a year to 2015.

Key Industry Trends

Boxed Coal: Another Step In Containerisation's March To Freight Domination
South Africa's Transnet Freight Rail (TFR) has launched a containerisation initiative to streamline the transportation of coal within the country. BMI highlights that this development further cements our view that containers will become increasingly dominant, and that they will soon play a role in what has traditionally been the dry-bulk transport sector. TFR, in cooperation with the country's state-owned power utility Eskom, has launched a rail freight containerisation system for Eskom's two power stations, Camden and Majuba, both located in Mpumalanga.

Rail Service Sees Significant Improvements - The container rail service between the Port of Durban and Johannesburg has been significantly improved following 'exhaustive tests and training for train drivers' last year, with the introduction of 75-wagon container trains by TFR.

South African Iron Ore Line Investment Offers Upside Potential To Throughput Forecasts Transnet has declared that expansion work on the iron ore line to the port of Saldhana is on track. BMI notes that the expansion is much-needed given the speed with which we expect South African iron ore exports to grow over the mid-term, and that there is considerable upside risk to our throughput forecasts for the port.

Key Risks To Outlook

The key risks to our South Africa freight forecasts are to the upside, as the country continues to invest in its freight transport infrastructure. Industrial actions and the perennial threat of adverse weather conditions in the country, however, provide risks to the downside.