JSE-listed technology group Reunert has set aside over R200 million working capital to guard against further port disruptions that affected its Nashua subsidiary.
So said group CEO Alan Dickson in an interview with ITWeb last week, after the company announced its financial results for six-month period ended 31 March.
Reunert is a South African company that manages a diversified portfolio of businesses in the fields of electrical engineering, information and communication technologies, as well as defence and allied technologies.
It notes the national port and logistics disruptions developed rapidly and persisted throughout the reporting period.
Earlier this year, state-owned company Transnet reportedly faced disruptions, which significantly impacted SA’s cargo transport systems. These disruptions affected rail and port operations.
Describing the challenges during that period, Dickson says: “In our world, we either import raw materials or finished products. In the case of Nashua, we bring finished products and in the case of cables, we bring in raw materials and components.”
When the ports congestion took place, the group struggled to get the inputs that it needs to make products and services. “We couldn’t just get what we needed to meet the commitments that we had given to our customers,” Dickson says.
“Export-wise, whether it be circuit breakers for defence, in many cases we found the stuff we needed. So, it wasn’t such a big impact.”
Contingency measures
He points out that most of the business units had to make other plans in order to meet the original customer commitments, or they were able to renegotiate the commitments without getting penalties.
However, this had two impacts generally across the group, he notes. “One was that it increased our costs, and we had to hold more stock in case of further hiccups going forward. It was a painful exercise for us.
“But I think the bigger impact for South Africa is this hurt the economy, as we saw GDP coming off quite significantly. It wasn’t a great set of events for both the country and the company.”
He explains that Nashua primarily brings in multifunction printers, and they come in large consolidated deliveries.
According to Dickson, Nashua orders these multifunction printers three months in advance and the products come in a few containers.
“The consolidated shipments of the multifunction printers got stuck outside. We had stuff that was stuck in the water for three months. What happened in Nashua’s case is they couldn’t make a plan because they have a single supplier – they are the exclusive importer of the products from the OEM [original equipment manufacturer] that we work with.
“The printers were stuck in water and we couldn’t get the product to meet customer demand. Just because of the length of time that it took to get through the port, we couldn’t fully resolve that in the half-year that we had. When it came to the reporting time, we still had stuff that was stuck in the water; we were not able to recover that.”
This impacted Nashua’s sales and operating profit, and certainly hurt the group’s ICT segment as well as the group, Dickson says.
Still more to do
He reveals that together with the CEO Initiative, Reunert has been working together with Transnet to try and resolve these issues.
The CEO Initiative was founded in 2016 by a group of concerned South African businesspeople who heeded the call of the then South African minister of finance, Pravin Gordhan, to assist in making a positive contribution to creating sustainable economic growth.
“The key issues that we had at the time was around cranes, and getting ships in and getting the containers off. We have managed to resolve these problems – technicians have been deployed and new equipment, parts and services have been brought in. Transnet is now at a level where they can clear the backlog,” says Dickson.
But in order for Transnet to get back to its true level, he points out this will be a longer exercise.
“The massive backlog that we had in October, November, December and January is largely gone. Our stocks have returned to normal and the way in which we are engaging with our shippers has also largely returned to normal. But as a country, we can’t rest on our laurels. Transnet has to do more to solve this problem once and for all.
“We’ve put about R200 million in working capital into the group to mitigate against such challenges in future. What we are doing is pretty much what we did during COVID, where we built up safety stocks because the supply chain was interrupted,” he concludes.
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