South African supply chains have been thrown into chaos after violence engulfed the country, with warehouses, distribution centres and trucks destroyed, and major trade routes disrupted. The state insurer, Sasria, must brace itself for an onslaught of claims from businesses.
Violent protests erupted across the country shortly after former South African President Jacob Zuma was taken into police custody on July 7. He is due to serve a 15-month prison term for contempt of court after refusing to give evidence for a corruption probe into his time in power.
In KwaZulu-Natal, the ports of Richards Bay and Durban – one of Africa’s busiest – have been heavily disrupted by the violence, and continue to face significant backlogs. The N3 toll route, a highway used by truckers travelling between KwaZulu-Natal and Gauteng, was shut, while force majeure was declared on the Natcor (Natal corridor) rail line, which connects the two provinces and carries the majority of South Africa’s freight.
Transnet, the state rail and port company, said on July 16 that for Durban port and Richards Bay the situation had “improved slightly” compared with earlier in the week.
However, it added that “fuel and food shortages, as well as remaining road closures in the Durban port vicinity, continue to constrain the rest of the supply chain as trucks cannot get into and out of the port, resulting in backlogs. In Richards Bay, where trucks handle dry bulk commodities, truck movements are underway.”
Work is ongoing to restart service on the suspended Natcor line. “However, this has been delayed by the need to clear remnants of the looting activities strewn along the railway,” Transnet said.
Elsewhere, trucks, warehouses and distribution centres have been looted and burnt. Sapref, the country’s largest oil refinery and a joint venture between BP and Shell, declared force majeure last week. Meanwhile Glencore, the commodities giant, warned of a potential force majeure because of the unrest in a notice to customers on July 14.
“Force majeure is typically the one thing in a contract that enables people to walk away without penalties, but you don’t necessarily want to call force majeure until there is a long delay because it means a competitor could come in and take your business,” Rupert Cutler, of Holtarka, a specialist risk and insurance consultancy, tells GTR.
Wave of claims
Already struggling with the fallout from coronavirus, the country faces R1bn (US$69mn) in lost stock as well as R15bn in damages from the violence, said Mxolisi Kaunda, mayor of Durban, in a press briefing. He added that 40,000 businesses had been affected and 5,000 informal traders were severely impacted by the criminality.
South Africa was already set to emerge from the Covid crisis weaker than it had been before the pandemic, finds a July report by the World Bank. It projects that GDP will rebound 4% this year, but will slow to 2.1% in 2022. For the year after the bank projects growth of just 1.5%, though the report argues that the reasons for sluggish growth do not lie in the government’s pandemic response, which has “generally been sound”.
The slowdown means the South African Special Risks Insurance Association (Sasria), a state-owned firm that provides insurance to individuals and businesses that own assets in South Africa, has a huge task on its hands dealing with a growing pile of claims.
Sasria was formed in 1979 after the Soweto uprisings, when black students protested Afrikaans as the language of instruction in Soweto’s schools and were violently put down by police. The situation prompted many private insurers to pull out of the market over fears of more political upheaval. Sasria covers civil commotion, public disorder, strikes, riots and terrorism.
Cutler says that Sasria’s involvement “should mean that a lot of businesses that have been affected by the rioting get compensated”, though adds: “The trucks that have been destroyed may be covered under Sasria, but that doesn’t help if you want to get cargo on a truck [that has been destroyed] into a supermarket or the supermarket is gone.”
A statement by Sasria on July 16 says that in its history, the company “has never experienced riots, violence, looting of this magnitude”.
It adds that although the assessing of claims has begun, it is still unsafe to travel to some of the “hotspots”, meaning assessments will take time – especially for larger claims.
“At this stage we do not know the full value of Sasria claims as a result of these riots as most claims have not been reported and most are still being investigated by the loss adjusters. We anticipate that in about two months’ time, we will have a clearer picture,” the insurer says.
Cutler adds that the knock-on impact of the rioting could take six to eight weeks to be resolved – “particularly, say, if one of the warehouses you were using in Durban was destroyed”.
If businesses engage in just-in-time deliveries through the port of Durban, even temporary disruption could risk incurring demurrage costs, he says. A demurrage fee occurs when the owner of a ship fails to load or discharge cargo within a specific time period.
“If a liner vessel is due to drop in Durban and it cannot get in, sometimes the ship will sail to the next place, which could be Cape Town or maybe Maputo. A port deviation could cause delays if containers are due off a vessel, affecting the supply chain for deliveries,” Cutler says.
Additionally, if goods are undamaged but cannot be accessed or shifted from Durban, daily costs will increase. For this, a supply chain insurance policy that includes business interruption without physical destruction would be needed to support a claim.
Sasria was not available for comment at the time of publication.