The government’s plans to privatise SA’s busiest and biggest container terminal hit its first hurdle after a losing bidder challenged the appointment of a private terminal operator to revamp and run the facility for the next 25 years.
APM Terminals, a subsidiary of global shipping giant AP Moller—Maersk, is opposing the appointment of the successful bidder, Philippines-based International Container Terminal Services Inc (ICTSI), arguing that it would be a better partner to SA’s rail and ports company Transnet.
The court challenge has thrown into sharp focus one of the government’s key reform promises: allowing individuals and businesses to generate their own electricity and wheel it through Eskom and municipal grids; to introduce private operators on the rail network; and get experienced port operators to help Transnet manage its biggest and busiest port terminals.
Durban Container Terminal (DCT) Pier 2 occupies an area of 1,850ha, with a water area of 892ha at high tide and 679ha at low tide. It handles 72% of the Port of Durban’s throughput and 46% of all SA traffic. Pier 2 has five operational berths and boasts 34,689 twenty-foot equivalent (TEU) stacking capacity.
Operated by 2,200 employees, it has faced major challenges — including a shortage of cranes, and equipment breakdowns due to years of underinvestment.
The government’s own Freight Logistics Roadmap — the blueprint published in December for reform of rail and ports — notes South African ports are failing to achieve competitive outcomes.
In a 2022 World Bank index of container-port performance, the Durban port was ranked 341 out of 348 ports globally, and two other Transnet ports were in the bottom 11.
In fact, South African ports scored the lowest in the four key measures used to track the efficiency of ports worldwide. For example, Transnet’s container terminals ranged between 17 and 24 gross crane moves per hour (GCH) when international best practice is 40.
When it comes to vessel waiting time at anchorage — another key performance measure — Transnet had targeted vessel waiting times of 25-30 hours but only achieved between 49 and 80 hours.
On ship turnaround time, a 2020 World Bank Diagnostic report found that container ships spend between 18.5 and 41.3 hours longer in Durban than comparable international ports.
When analysing berth productivity — total volume handled divided by the total time that a ship spends at berth — the same report found that compared with 14 ports in developing countries, the majority of ships calling at Durban spent more time at the berth loading and unloading than comparable ships at every other port except Dar es Salaam.
The government’s road map stated: “As a result of the inefficiency of these terminals, cargo is increasingly being diverted to the Ports of Maputo and Luanda, resulting in a permanent loss of export traffic for SA. This underperformance has left SA unable to fully participate in recent commodity price booms. Since 2010 the country has forfeited an estimated $26.7bn in iron ore and coal export trade.”
In its turnaround plan released last year, Transnet National Ports Authority promised to speed up capital investment, focusing on maintenance, and returning the marine fleet to operations.
In July last year, its board selected ICTSI as the preferred equity partner for developing and upgrading Pier 2. ICTSI was shortlisted from 18 companies that responded to the initial request in 2021, of which nine were global terminal operators.
At the time of the announcement, former group CEO Portia Derby said the partnership was in line with the group’s growth strategy — where Pier 2’s capacity of 2-million TEUs is planned to increase to 2.8-million.
In March, Transnet said it had undertaken a due diligence process to evaluate the ICTSI’s financial soundness, and found the operator had enough expertise and financial muscle to undertake the project, which is now ready for financial close.
We are of the view that it was not necessary, and Transnet is on a great recovery road so far by implementing its recovery plan under the new board. All Transnet needs is additional funding from the government to resolve most of its woes
— Maersk's Adhish Alawani
However, Maersk’s senior media relations manager for the Indian subcontinent, Middle East & Africa, Adhish Alawani, told Business Times they were challenging the decision in court because they were confident about the bid they submitted to Transnet — and “about our ability to deliver what Transnet, SAs and all exporters and importers need”.
“It is not our intention to delay the process unnecessarily or to cause any disruption. Instead, we wish to ensure that a proper, fair and compliant process has been followed. This challenge will not delay the process in any real sense and will rather ensure that the process is lawful,” Alawani said.
ICTSI said it would be inappropriate for it to comment at this stage.
Trade unions, whose members make up the majority of workers at Pier 2, are also unhappy about the privatisation. United National Transport Union (Untu) spokesperson Atenkosi Plaatjie said they were not sure what criteria Transnet used to select ICTSI.
“We are of the view that it was not necessary, and Transnet is on a great recovery road so far by implementing its recovery plan under the new board. All Transnet needs is additional funding from the government to resolve most of its woes,” she said.
Executive director at the Centre for Risk Analysis Chris Hattingh said a functioning DCT Pier 2 was vital for imports and exports.
“Given the vital trade corridor that is the N3 between KwaZulu-Natal and Gauteng, the latter [being] the heart of the South African economy, it is crucial that Pier 2, and Durban port more broadly, functions well.
Hattingh said some of terminal’s biggest challenges were equipment breakdowns, and ensuring there were enough brackets for trucks and cranes to unload containers. It also needed to work on the digitalisation and modernisation of its processes.
“The processing of trucks to take out containers from the port should also be prioritised”.
Hattingh said ICTSI still has to prove it is up to the task of upgrading the port. “If there can be a clear focus on specific areas of improvement, and deadlines are held to, there is no reason to think ICTSI cannot improve operations in some regards.”
Given the Philippine’s based terminal operator’s experience in global operations, it is likely to have some measure of ability in managing relations with labour, Hattingh said.
“In SA, there is the added wrinkle of labour’s close relationship with the governing party. This might complicate matters. It is vital that labour’s buy-in is sought from the start, otherwise tensions will probably bubble under and possibly flare up”.
