You can also listen to this podcast on iono.fm here.
SIMON BROWN: I’m chatting with Dylan Govender, Head of Supply Chain at Investec Commercial Banking. Dylan, I appreciate the time. When we were setting up this interview the conversation was all around the tariff defeat at the [US] Supreme Court. But of course we’ve got the war on Iran.
We’ll get to Iran. Let’s touch on that Supreme Court. It’s a fairly big deal, I imagine. As I understand, South African exporters into the US were sitting at a 30% tariff. They’re now at 10%. There’s a window to perhaps move fast and get some opportunity here. Is that a fair assessment?
DYLAN GOVENDER: Yes, 100% agree, Simon. A true assessment. Ultimately there is a window of opportunity. But if we take it back in terms of the tariff imposition, I think it came into play in June last year. Just looking at the exports – that’s from SA to USA – in the first half of the year we exported approximately R68 billion. The second half of the year was about R79 billion [in value]. It’s a much higher value that actually left.
So did the tariff imposition actually restrict exports into the US? Yes or no? I think the figures show it didn’t. What actually happened was the importers in the US bore the added duties, built it into their prices, and the consumer in the US ultimately suffered the additional cost. So what’s happening now is you’ve got about $150 billion in terms of additional duties that was paid. That’s now deemed illegal, in terms of this court’s ruling, that importers are seeking refunds for. So how that’s going to affect the economy and what it intended to do is totally opposite.
SIMON BROWN: I take your point there. And reading the Supreme Court, in their judgment, they did say they’d refund. I think they said it’s going to be messy, which is probably an understatement.
Are we going to potentially see some pull forward? If I’m an American business and I’m importing from, let’s say, South Africa and a company here, and my tariff is suddenly down, maybe I’m importing a little more because we simply ain’t. This tariff, the new 10%, is a 150-day. Trump has said he’ll make it 15%, as I understand. He hasn’t yet. Is there maybe some pull forward – an opportunity there as well?
DYLAN GOVENDER: Simon, there’s definitely opportunity. But I still take it back to the US consumer. They’ve already bonded these additional costs. They are built into the prices. So it’s just going to lead to a decrease in price and hopefully higher sales and imports in the US can benefit from that window period.
But with the Trump administration [when] we say something’s going to happen it’s only when it happens that we’ll actually know how it plays out.
SIMON BROWN: Fair point, yes. And even then we perhaps don’t know how long that lasts either.
Let’s move to the war in Iran. There are a couple of points here. The one is obviously the Strait of Hormuz. I track it, on – what’s it called? – VesselFinder, the website. Usually that sort of 20-30km stretch is packed with ships. There is nothing going through there. My sense is perhaps around issues of fears and insurance – can they get insured? I see President Trump overnight was saying America will insure ships travelling through the strait. This is a bottleneck not just for oil but for the whole region.
DYLAN GOVENDER: Yes, Simon. We’ve seen it come out in the market already. Over the last few days we’ve seen the major shipping lines worldwide implement a war-risk surcharge. We’re talking about probably $1000 per container. So that’s already in play. We’ve got GRIs [general rate increases] coming through as well. It’s not so bad. I think it’s more the air freight that’s going to be impacted very, very drastically at the moment because a lot of hubs for your major airlines are based in the Middle East and things like your supply chain around just-in-time goods getting here is going to be severely impacted.
SIMON BROWN: You mentioned ‘just in time’ and of course just-in-time supply chains were the big thesis of the ’90s and into 2000. During Covid-19 I know a lot of companies said they were moving away to more a just-in-case sort of supply chain. Have we seen that shift or are we still sitting very much in just-in-time?
DYLAN GOVENDER: I think we have seen that shift. However, there are certain industries – the medical industry, for example – still reliant on just-in-time goods.
However, [with] the learnings over the last few years I think logistics has become very resilient. Early last year we had the issue around the Suez Canal – very similar to the Strait – so it is just extended sailing times, extended lead times, building in your working capital, ensuring your cycle is built correctly for your supply chain to make sure that you can get through this period.
But it’s nothing that logistics has not faced previously. It’s just taking those learnings and adapting to them and making sure you have the right working capital specialists that you’re partnering with.
SIMON BROWN: Yes, I take your point. Logistics has always been complex. Maybe it has become significantly more complex and maybe we’re just getting better. When I say ‘we’, I mean the royal ‘we’.
We’ll leave it there. Dylan Govender, head of supply chain at Investec Commercial Banking, I always appreciate the insights.
Listen to the full MoneywebNOW podcast every weekday morning here.
#Navigating #normal #global #supply #chains