South Africa Freight Transportation Report Q2 2008

A fall in dry bulk shipping freight rates in January had a positive effect on African coal producers, particularly those using South Africa's Richards Bay terminal. In the third week of January the Baltic Dry Index fell by 19%. Freight costs can represent up to half the cost of delivered coal in Europe and other markets. A quarter of all thermal coal imported into Europe is shipped through Richards Bay. Asian importers such as China and Japan have begun competing for Richards Bay coal, partly because of transport bottlenecks in Australia. The lower freight rates provided producers with an opportunity to boost prices and in the week ending January 18 Richard Bay coal rose by 50 cents, or 0.5% to US$101.40 per tonne. BMI believes demand for coal and other commodities will underpin prospects for South African shipping. In this latest South Africa Freight Transport Report, BMI concludes that freight carried by sea in South Africa is set to increase at an annual average rate of 7.9% over the next five years, ahead of the general rate of GDP growth.

Various factors support this prediction. The outlook for both domestic economic growth and exports is encouraging. We expect the economy will grow at an annual average rate of 5.7% across the 2008-2012 forecast period, with foreign trade rising by 15.0% a year in value terms. Government policy favours resumed investment port development, but this is taking time to feed through. South Africa's rate of economic expansion has been spurred by domestic consumption, investment growth and international demand for commodities. These have resulted in strong demand for transport services; buoyant consumption has maintained the need for import growth; export shipments of gold, platinum group metals, chrome, manganese and coal have necessitated increased freight services. Real GDP growth will also be boosted by South Africa's plans to foster regional expansion in southern Africa, and this entails improving and extending the transport network.

We expect road haulage to grow a little faster than GDP, although poor road quality in some areas will be a restraining factor. Rail freight will lag just behind the economy's general growth rate due to an ongoing investment shortfall, and despite current catch-up attempts. Sea freight will be ahead of GDP, supported by port-expansion plans and the current attempt to persuade shipping companies to re-flag their fleets, joining the South African merchant marine. Airfreight has expanded relatively slowly in recent years, although the expansion of low-cost carriers and an increasing focus on the African regional market should inject some extra dynamism in the forecast period. Combining all these factors, our conclusion is that total freight volume across the different modes, measured in million tonnes-km, will rise by an annual average of 7.3% in the 2008-2012 forecast period.

South Africa's overall freight rating, at 71.6 out of 100, is above the average for the Middle East and Africa (MEA) region. It scores well in terms of political and economic factors and in its regulatory background, but its record in relation to historic and forecast growth in foreign trade and in transport remains relatively weak. By the very nature of the industry, many of the problems associated with reforming transport network, facilities and services have to be considered over a medium-term time frame.

According to our latest estimates, the total value of transport and communications GDP will rise to US$35.5bn in nominal terms by 2012, representing 8.2% of South Africa's GDP.