There has been a litany of woe in the financial results announcements of a host of companies in recent weeks, concerning the increasing severity of the crisis at Transnet and its effect on the economy.
Business and government have intervened to try to make a difference. It is not yet clear whether they will succeed, and how far the reform process will go.
Kumba is now sounding the alarm about the iron ore export line in the Northern Cape, adding to serial warnings from Thungela, Exxaro and Sasol about the coal export line to Richards Bay. In chemicals and forestry products, Omnia and Sappi have cited the pressure they are under because of Transnet’s inability to provide freight rail services. Costs are going up and exports and investment being lost as companies are forced to move from trains to trucks. Dysfunction at the ports is hurting too.
A study by Stellenbosch University’s Prof Jan Havenga and his team shows how much worse the logistics crisis has grown in just a few years. At almost R400bn for 2022, the direct and induced cost of the underperformance of SA’s rail and ports was over five times what it was in 2019, equivalent to 6% of GDP.
Rail’s dysfunction was the largest portion of that (at 5.3%); the study found just how far Transnet has fallen behind in its task. Though it moves about 80% of SA’s rail-friendly freight, if the coal and iron ore export lines are removed, Transnet moves less than 40%. Shockingly, the study says, in 2022 Transnet’s export coal line underperformed by nearly 30% in tonnage terms for the first time in its history.
Despite a chorus of distress calls from the private sector, the government only really started to take notice of the logistics crisis earlier this year. Things have moved along fairly rapidly since then.
After the Minerals Council called (in a leaked letter) for Transnet CEO Portia Derby’s resignation in December, the council and Transnet’s board set up a joint task team to try to tackle the crisis. It focused on the four main commodity rail and port “corridors” — for coal, iron ore, chrome and manganese. It did make some progress. But the Transnet board barely existed, and Derby reportedly attended few if any meetings, sending juniors instead.
The Minerals Council initiative has since been folded into the national logistics crisis committee, which President Cyril Ramaphosa set up in April under his leadership. Now business has partnered with the government to arrest the slide in the economy, focusing on transport and logistics as one of three priority areas, along with energy and crime. The crisis committee is the structure through which it is working to tackle the logistics crisis.
The committee seems more likely to make progress than the Minerals Council’s joint initiative with Transnet. The dynamics are better than they were when it was just Transnet’s customers and the state-owned entity; the president and the responsible ministers can hold Transnet accountable; and business is speedily providing the government with resources and skills, including independent experts and a project management office, that it could not otherwise access.
One side of the committee’s work is on shorter-term operational improvements to rail and port services that can shift the dial. It is focused on the four “commodity” corridors identified in the Minerals Council initiative (coal, iron ore, chrome, manganese), as well as a fifth, the container corridor. The other part of its work is on structural reforms that will open up rail and port networks to private participation and fundamentally transform Transnet and the industry in the longer term.
The government’s new national freight logistics strategy sets out the path both to a short-term operational turnaround and a longer-term industry restructuring. A final version is due to go to cabinet in September, but the committee and the various teams are pressing ahead in the meantime.
Will any of it work? In theory at least, it should be easier to start fixing some of Transnet’s operations than it is to close the energy gap. The utilisation of Transnet’s fleet of locomotives has dropped by about 40% over the past three years or so since Derby took over as CEO. Just getting many of those locomotives back to service would make a big difference.
Transnet tends to place the blame externally on crime and cable theft and on the state capture debacle with the Chinese locomotives. But the problem goes well beyond the Chinese locos: China supplied only about 45% of the 980 new locomotives Transnet has added to its fleet at great expense since 2010. Over that period the freight volumes transported by its railways dropped from 200-million tonnes a year, and a peak of 222-million tonnes in 2018/19, to less than 150-million tonnes.
So it is a management problem, not just an external problem. Whether Transnet will accept the private sector help that is on offer to fix the problem is a question: the national logistics crisis committee folk believe Derby and her team are receptive. But state-owned entities have a habit of closing ranks when outside experts try to step into their territory.
Similarly with the reforms to open up the market and introduce private players. Transnet is publicly supportive, but whether it is protecting vested interests, or simply reluctant to relinquish control, the process of tendering out rail and port slots to the private sector has been excruciatingly slow and replete with conditions. The road map, and the national logistics crisis committee accountability structure itself, aim to ensure — in one insider’s words — that Transnet cannot hijack the reform process.
The Durban container port private partnership has now finally made progress, though Ngqura is still waiting and Cape Town says its port is crying out for private participation. In rail, Transnet is to carve out a separate infrastructure manager by October that will open up its rail network to new players, supposedly even-handedly.
Mining industry players and others argue the reform does not go nearly far enough — that the infrastructure manager needs to be completely independent of Transnet, and that some of the lines themselves, not just slots on the lines, need to be concessioned out.
That might be an option for the future. For now, SA urgently needs a freight transport turnaround. The business-government partnership effort is its best chance.
• Joffe is editor-at-large.
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