Global economic growth is expected to be subdued, if not stagnant, this year, with global trade also expected to be sluggish, financial services provider Investec reports.

According to the World Bank, global trade growth for this year is expected to be only half the average growth achieved in the decade before the pandemic. 

“We expect this year to be quite volatile. Inflation globally has been coming down and the market consensus is for interest rate cuts to come into effect later in the year, but gross domestic product (GDP) growth is still muted. Added to this, current geopolitical tensions are high. While these tensions currently only have a direct effect on certain regional trade routes such as Europe-Asia, should they escalate, it certainly can destabilise global trade and supply chains in many ways,” Investec logistics head Denys Hobson says.

He cites the example of recent military strikes in the Red Sea, which have resulted in sea freight cargo being delayed in transit. Subsequently, companies have had to airfreight additional stock in to compensate for the sea freight delays.

This pushes up the demand for airfreight and, with an increase in demand, the airfreight rates also increase, leading to higher landed costs. Sea freight costs also increase on trades impacted by the current Red Sea situation because shipping lines have diverted their vessels around the Cape of Good Hope, which increases their transit times and costs, while reducing their capacity and equipment availability. 

“It is also an election year for more than 50 countries this year and we know that, with this, it can create uncertainty in various forms such as investments and policy, but it also can bring about positive sentiment depending on the respective outcomes,” Hobson says.

He also believes that weather patterns are becoming more volatile and extreme, which can impact on global capacity and trade routes.

“If we start to get significant increases in weather events for extended periods of time, we may experience disruptions to supply chains,” Hobson explains.

From a South African perspective, the biggest concern is the efficiency of ports and rail infrastructure.

“If sustainable progress doesn’t get made soon, we may see further route and capacity changes on the South African in- and outbound routes as it has become too expensive to have vessels stuck in ports for days and weeks,” Hobson says, adding that shipping lines could use their capacity more effectively on other trades if required.

“We may even see some remove direct sailings or only have limited sailings coming into South Africa, which will reduce available capacity and increase freight rates,” he says.

Hobson notes that State-owned rail operator Transnet’s financial performance is worrying and that all eyes will be on National Treasury’s Budget speech in February regarding a possible bailout. Key leadership positions within Transnet also need to be finalised, he says.

Meanwhile, the rand is also expected to remain under pressure and, with ongoing concerns around Transnet and loadshedding, investor confidence remains muted, he says. Moreover, with 2024 being an election year, there may be some investment uncertainty. 

“While much is under way at Transnet to improve performance across multiple areas, we still don’t expect rail to operate efficiently this year and it is likely still going to be a hinderance to the industry and South Africa’s economic growth. To get it where it needs to be, with tangible change, is going to require substantial collaboration across private and government sectors as rail and ports need to work together to achieve meaningful change and progress. This of course will require clear policies, transparency, investment and decisive leadership,” Hobson says.

He says that, given the learnings from events over the past few years, South Africans should be able to adapt much quicker to supply chain shocks. However, importers need to be cautious.

“They need to watch their costs closely, adjust lead times where required and examine ways of ensuring that their working capital is effectively utilised. Financial discipline is key and market conditions will eventually become more buoyant which will open additional avenues and opportunities for growth both locally and abroad - they need to be able to take advantage of these,” Hobson says.

He advises close collaboration with key supply chain stakeholders and financial partners and to have a clear understanding of changes to market and industry conditions and the impacts these could have, as they might present opportunities.