The big news in global currency markets today is the South African rand.
The rand is up more than 1 per cent against the U.S. dollar – no small move – on news that a trucker strike, which over the past few weeks has worked to destabilize critical supply chains, may be finally coming to a resolution.
Here is a chart showing the move today:
Photo: Bloomberg, Business Insider
Three small South African trucking unions agreed to suspend the strike when employers caved in over wage increases, offering truckers a pay-raise of at least 10 per cent.
That is welcome news for an economy seemingly on the brink – last week, reports on the ground suggested that filling stations were running out of gas, ATMs were running out of cash, and hospitals were running out of vital supplies and burning through their reserve stocks as the country’s transportation sector ground to a halt and the flow of goods was interrupted, threatening to bring chaos on the South African economy.
However, there are a few reasons why South Africa is definitely not out of the woods yet, and more bad news is likely to emerge.
The first issue is that the trucking unions that have agreed to end the strike only represent about 15,000 striking truckers. On the other hand, the largest trucking union, SATAWU, is still holding out – and it represents almost twice as many workers as the other three unions combined.
The second issue is that the transport strike could still infect South Africa’s port and railway sectors, and if that happens, it could once again exacerbate supply shortages and send commodity costs soaring.
Once again, SATAWU may be driving this as well. Reuters reported on Friday that SATAWU was calling for strikes in the rail and port sectors to show solidarity with the truckers:
The truck driver strike has hit fuel supplies and logistics groups in Africa’s biggest economy. If it expands to rail and ports, it would also affect exports of commodities such as coal, platinum and gold.
“We are working to have all our members in rail, ports join the strike in sympathy of the truck drivers as of next week,” said Vincent Masoga, a spokesman for the South African Transport and Allied Workers Union (SATAWU).
These strikes have yet to materialise, but SATAWU is still holding out, which could mean more agitation in the near future and the possibility that the strike spreads.
The third – and perhaps most important – problem facing South Africa is the damage that the trucking strikes have already done to the economy.
David Korowicz, a complex systems scientist who studies supply-chain interactions, told Business Insider last week when the situation really began to escalate that even when the truckers decide to go back to work, “you don’t just turn on the trucks again, kind of like this switch, and suddenly everything works again.”
A briefing today from geopolitical risk consulting firm Control Risks Group echoes both Korowicz’s warning and that regarding possible port and rail strike activity:
Disruption to the supply of some essential commodities should be expected to continue, despite reports on 9 October that three of four trade unions representing truck drivers had suspended their three week-long strike. The principal trade union Satawu, which represents around 28,000 workers, has refused to end the walkout, despite expressing a willingness to compromise by lowering its demanded wage hike from 12% to 10%. As such, deliveries of essential goods, including certain grades of fuel to filling stations, will remain subject to disruption until a full settlement has been reached.
In other developments, Transnet port and rail workers have threatened to undertake a one-day walkout on 15 October in solidarity with the striking truck drivers.
Meanwhile, AgriSA, an agricultural trade association in South Africa, today issued the following warning about how the trucking strike is affecting food supplies (via the South African Press Assocation):
The ongoing truck drivers’ strike is resulting in losses by suppliers of fresh produce and driving up
prices, Agri SA said on Tuesday.
“Not only does it impact on essential daily provision of products to consumers but, unlike non-perishable products, involves direct losses,” Agri SA president Johannes Möller said in a statement.
He said fresh produce could only be kept in storage for a limited of time before it spoiled.
And big corporations in South Africa – including the likes of Shell Oil and ArcelorMittal – are invoking force majeure in contracts. In other words, they are telling business partners that they are unable to make good on deliveries because they themselves have been forced to suspend production, owing to the supply chain disruption caused by the transportation strikes.
The strikes are clearly, at this point, beginning to interrupt the normal functioning of the South African economy. If an agreement can be reached soon, additional pain may be averted.
However, Korowicz warned against the dangers that increase as time goes on and things don’t get resolved:
[The risk] becomes nonlinear. The real thing to look at…is the rate of spreading. In other words, if the system is starting to effectively lose control of itself, and everything’s just spreading. And the more it spreads, the harder it is to arrest, and even if all the truckers come back, the greater the difficulty it will be to restart and bring things back up to where they were before – if that’s possible.
Again, it depends on how long it goes on. As you can see, even so far, a week or two weeks already are causing problems in a country that is far less complex than here [in Europe].
A less complex economy like South Africa, Korowicz says, has more of a buffer against supply chain shocks.
South Africa is burning through that buffer.