Race to repair flood damage in KZN while business wipes its bloody nose
While bigger businesses are covered by insurance, the negative impact of the floods on the KwaZulu-Natal and broader South African economy cannot be mitigated by insurance. At this point, the losses are not quantifiable.
South African businesses in and around flood-stricken Durban, Pietermaritzburg and the broader KwaZulu-Natal area are desperately juggling the assessment of damage to their infrastructure and stock while trying to keep trading and simultaneously ensuring their staff are safe.
For all of the companies that have provided the JSE with updates on the floods, or posted updates on their websites, ensuring that their staff were safe was a necessary first priority given that more than 400 people have lost their lives, 4,000 homes have been destroyed and more than 40,000 people have been affected.
Sappi, Grindrod, Hulamin, Maersk, Pepkor and the Port of Durban have all been hit. While property companies Fortress and Fairvest noted that their buildings in the area had been affected by the floodwaters, they have suffered no structural damage.
This, of course, is the tip of the iceberg.
In particular, the logistics businesses in and around Durban port have been severely affected, with Grindrod and Maersk alerting customers and suppliers that they have suspended aspects of their operations.
Grindrod’s container depots, terminals and warehouse facilities in and around central Durban have been impacted, with operations at five of their sites suspended and likely to remain so for several weeks. The company noted that infrastructure damage in the vicinity of the port was likely to affect port logistics.
The impact to Grindrod includes damage to equipment and infrastructure. Efforts to recover customer containers and restore facilities have commenced, in collaboration with the company’s insurers.
As far as exports are concerned, Grindrod has begun engaging with key customers to make contingency plans, particularly for the upcoming citrus season.
In the same update, Grindrod noted that trading activity for the first quarter of the 2022 financial year was particularly pleasing, making the impact of the floods all the more galling.
Supported by favourable commodity demand, Ports and Terminal volumes are up 11% on the prior period, while Terminals dry bulk volumes are up 48%. Its Coastal Shipping and Clearing and Forwarding businesses have seen earnings rise by 39% compared with the prior period. The businesses continued to capitalise on the recovery of seaborne trade to pre-pandemic levels.
The events of the past week will undoubtedly have an impact on this momentum, but shareholders do not seem too fazed and the share was up marginally to R6.60 on the day. Grindrod did add that its damaged equipment and facilities are all insured, including cover for business interruption.
Shipping company Maersk is another that has been affected by the damage to the road, rail and port infrastructure in Durban. The company notes that access to the port is still restricted, and while Transnet has made good progress on restoring road access, landside operations remain highly constrained. Deviations to Port Elizabeth to land Durban cargo and load exports, releasing pressure on Durban, may be taken.
While the company will try to fill current export orders, no new orders will be taken for Durban.
Given the extensive damage to the rail network, with multiple points of failure from Cato Ridge through to the coast, rail services remain suspended.
Any export containers that were en route when rail services were suspended will remain on the trains and will not be scheduled on their respective booked vessels.
Maersk notes that no indication has been given regarding the extent of the rail damage and the company expects a lengthy period until operations are restored.
Sappi will feel this pain. The company noted that shipping lines have already confirmed that its export shipments will be delayed. In addition, its Saiccor, Tugela and Stanger mills have been impacted. Production has been stopped, some inventory is damaged and deliveries to domestic customers have been affected.
“Our condolences go out to the families of those in various communities who have lost loved ones,” says Sappi CEO Steve Binnie. “Over and above the support we will be providing in Sappi communities, we will join organised business to provide the necessary support.”
Again, investors do not seem to be unduly alarmed and Sappi’s share has declined a modest 2% over the week, to settle at about R56.40.
Like other big importers, value retailer Pepkor has big warehouses in the vicinity of the port and its Isipingo distribution centre in Durban has sustained significant damage. Supply chain operations have been adversely affected.
“The distribution centre has been temporarily closed to ensure the safety and wellbeing of our employees and to commence recovery operations,” CEO Leon Lourens announced in a statement.
PEP operates three distribution centres in Durban, Cape Town and Johannesburg and contingency plans are being put in place for stores to be serviced in the short term from the unaffected distribution facilities.
The group has not been able to quantify the full extent of the losses suffered in terms of merchandise, infrastructure and disruption of operations.
“I would personally like to thank our Isipingo distribution centre team for their courageous actions over the past few days to ensure the safety of employees and commitment to restoring operations as soon as possible,” said Lourens.
In some cases, companies have been able to restore operations. Aluminium supplier and exporter Hulamin is one.
The company noted that road closures did affect supplies of both liquid petroleum and compressed natural gas. However, the supply of both products has been restored and operations are back to normal. CEO Richard Jacob has made no comment on any possible impact on its export activities.
Property companies Fortress and Fairvest were the first of the listed property counters to update the market on the impact on their portfolios.
In the case of Fortress, four properties spanning 61,811m2 and leased to logistics and industrial clients in Pinetown and Prospecton have been affected. However, the company notes that only minor flood damage and no significant structural damage have been identified. This represents about 2% of the total portfolio.
The Fairvest group has 16 assets, representing 11.1% of its total portfolio by gross lettable area situated in KZN. But similarly, there has been no damage of a structural nature to any of its properties, besides minor instances of leaks and water supply shortages.
The situation in KZN is far from normalised, and more companies will provide updates in days to come. Many others are unlisted and even more uninsured. The full impact will become clearer as time goes by.
Meanwhile, mop-up operations are under way with a focus on restoring critical infrastructure as fast as possible. BM/DM