Rate hikes likely to have an impact on import/export market says Blue Strata TradingPublished on: July 19, 2015
With the proposed municipal rate increases coming in at above inflation as of 1st July 2015 businesses will have to tighten their operational costs. In fact, according to Blue Strata these hikes will not only put businesses and consumers under immense pressure, but will also likely have an impact on the import and export market.
Says Adam Orlin, CEO of Blue Strata Trading: “Organisations need to view their supply chain processes as real assets rather than just a means to an end – now more so than ever. In fact, today, unlocking the value chain is critical and as businesses set to tighten their belts they need to understand the real costs of their imports.”
Managing the import process and associated finance component effectively within the overall supply chain cycle is critical. By having guaranteed fixed prices up front, importers are better able to determine the accurate profitability and viability of a product before committing to an order.
“Many organisations rely on averages to forecast costs without fully appreciating how forex gains or losses that remain unallocated for, and freight costs relative to the value of the import, can impact on the true cost of the goods,” adds Orlin. “And with operational costs and tariff hikes set to increase, not to mention the uncertainty around the Rand value; businesses cannot afford to get their calculations wrong. Essentially it’s about managing the transactional risk.”
The Johannesburg Council and City of Cape Town proposed that municipal services will increase above the inflation rate – all tariffs including: electricity, water, bus and refuse collection would be increased vastly. Johannesburg residents will be exposed to the following proposed increases: electricity by 12%; water 11% – 17% – depending on the amount used; Sewage rates will hike by 15%; bus services increases by 6% – 7%; property rates by 6% and all other tariffs, including refuse collection, are to be increased by 15%.
Continues Orlin; “With such business uncertainly and the rate hikes, many businesses are likely to look at alternative methods to keep their business operational and stable, with very little disruptions to their bottom line. As a result, due to the rise in operational costs, some manufacturers will look at importing parts of, if not all, of their operations as it may prove to be more cost effective than manufacturing them locally. Moreover, such business increases also make South African goods less competitive for the export market.”
“It’s difficult to determine what the impact will be but one thing is certain – getting the value chain right will be critical.” Various strategies will be deployed by different businesses with some having a rigid and consistent policy while others looking to manage their risk on a more ad hoc basis in conjunction with the market at a point in time. “Ultimately, importers need to do what is right for their business based on the current market conditions – and the only way to do that is to ensure that they have greater visibility to make the right decision. Technology can deliver significant value to the business bottom line. Not only can it reduce costs but it also provides for better monitoring and control of the state of the business strategy – something that is very much needed in the current business landscape,” concludes Orlin.