Grindrod has become the darling of investors in recent weeks, with shares in the logistics giant rallying to their highest level in a decade after it was awarded third-party access to SA’s rail network.
The group’s landmark win puts it at the coalface of the country’s flagship logistics reform agenda, giving Grindrod a part to play in the death of the Transnet Freight Rail (TFR) monopoly.
Late last year, Transnet announced its decision to split TFR into an operations division, still called TFR, and the distinct Transnet Rail Infrastructure Manager (TRIM), which would pave the way for third-party participation in Transnet’s 21,232km rail network.
TRIM promises to drive the recovery of SA logistics by attracting more focused private sector investment into the country’s rail corridors, a critical reform given the outsize role rail plays in the domestic economy.
When Grindrod announced late last month that it had been awarded third-party access, shares in the company surged nearly 11% on the day. They have since gained another 12%, ending a year-long share price decline in spectacular fashion. They reached their highest level in more than a decade on Monday.
The company was granted access to Transnet’s northeast corridor, which links Richards Bay to the Limpopo River at Beitbridge, ultimately connecting SA’s rail freight system with those of Eswatini, Zimbabwe, Mozambique, Zambia and the Democratic Republic of Congo. The corridor carries 14% of TFR’s volumes. The exact timing of when Grindrod will start to use it is unknown.
Responding to the department of transport’s announcement in late August, Grindrod said the achievement marked a “significant milestone in SA’s rail reform journey, creating opportunities for private sector participation to contribute positively to the country’s freight logistics system”.
Grindrod CEO Xolani Mbambo said: “We are honoured for the recognition to play a role in SA’s rail reform. This milestone supports our commitment to driving cost-effective and efficient integrated logistics solutions for our customers’ cargo flows.”
Despite the heady sentiment, the liberalisation of SA’s rail management will not happen overnight. The introduction of third-party access comes with its fair share of challenges, particularly as theft, vandalism and mismanagement have left many corridors broken down or unattractive to investors.
Cash-strapped Transnet has estimated that it needs R14bn a year over the next five years to get its ailing network infrastructure up to standard for private operators.
“This is only the start of the rail reform, and it will take a number of years for the sector to mature,” Grindrod spokesperson Alison Briggs told Business Day.
Earlier this year, as Grindrod began the bidding process for third-party access, the group emphasised that it would be selective in the corridors it tendered for.
Still, the company was optimistic about the new opportunities that rail reform would offer in the coming years. A trading statement in February showed Grindrod had its eyes on several logistics infrastructure-led investment opportunities valued at R8bn across its core portfolio.
“Rail offers a cost-effective and efficient mode of transport for bulk cargo and supports the government rail reform strategy to reduce the cost of transportation costs in the long term, which will have a positive impact on our economy and boost global trade,” said Briggs.
“We have already prepared a combination of resources for open access readiness. However, specific resources still need to be put in place based on the formal process to be followed with TRIM.”
The rebound in Grindrod’s share price comes after the group weathered a storm of operational disruptions in the past year, with trade wars, sluggish commodity prices and policy uncertainty weighing on export volumes. Added to this were post-election protests and civil unrest in Mozambique, which dealt a significant blow to operations at the Port of Maputo.
At 3pm on Monday Grindrod’s share price was up 2.2% to R16.25. It is up about 36% so far this year.
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