Transnet backs down from tariff increase after customers cry foul
State-owned logistics giant back-pedals on some manganese lines after threat of legal action
Transnet has back-pedalled on steep increases it sought to implement on some of its container freight lines used to transport manganese out of the Northern Cape, after being threatened with legal action by a small client and causing consternation among others.
Unhappy customers say the threatened increases would have amounted to almost 190% in some instances and flout promises by the state to reduce the cost of doing business in SA. They also fly in the face of efforts to support small and emerging businesses, including junior mines, operating in economically deprived regions such as the Northern Cape, worried clients told Business Day.
In November Transnet notified customers of the increases, meant to be phased in between December and February.
This came after the parastatal said that a review of its containerised manganese flows from the Northern Cape and Free State revealed that it was losing money on these operations. The increases would have fallen outside the parastatal’s annual increases.
But Transnet, which has a monopoly on freight rail in SA, backed down from implementing the increases last week, after the threat of legal action by third-party logistics company Supply Chain Architects (SCA).
The company supplies small mines, which do not transport large-enough manganese parcels to receive bulk allocations on Transnet’s rail network, with logistics services to transport the mineral out of Lohatla, Northern Cape, to the port of Coega.
Transnet did not respond to detailed questions regarding its initial decision to up the tariffs. It would only say that it will “be holding the original tariffs until end-March 2020. No increases will be applied during this time.”
“While we understand and we are comforted by government’s vision and policy on a national level, we just feel that we have become despondent on the implementation at the state-owned enterprise level on the groundSivi Reddy, SCA COO
The matter comes as mineral resources & energy minister Gwede Mantashe met small-scale miners in the Northern Cape during the recent ANC birthday celebrations, and President Cyril Ramaphosa reportedly stressed the need to support small miners in the region.
As part of an economic stimulus package announced in 2018, Ramaphosa also promised the review of administered prices — notably electricity, port and rail prices — in a bid to reduce the cost of doing business.
Ahead of Transnet’s about-turn, SCA COO Sivi Reddy told Business Day that the imposition of the threatened increases at these magnitudes was “irresponsible” and threatened jobs along the value chain, including at the small logistic company’s own operations.
“While we understand and we are comforted by government’s vision and policy on a national level, we just feel that we have become despondent on the implementation at the state-owned enterprise level on the ground,” he said.
Transnet’s refusal to properly consider SCA’s objections to the increases and the very short time over which they would have been implemented prompted the company to threaten legal action over the hikes.
Reddy said SCA welcomes “the decision by Transnet to retract their position on this matter, taking into consideration the legal ramifications, among other factors”.
But he remained worried about what lies ahead after March 2020.
“It is difficult to conduct business when there is uncertainty as to what will happen after March 2020. Like many other stakeholders, we remain concerned about their intentions going forward, and trust a reasonable approach will be adopted,” he said.
Manganese and iron ore shipments are the second-largest source of revenue for Transnet’s freight rail division after coal, accounting for R12.4bn in its last financial year.
Last year Transnet sealed its 10th long-term bulk contract with major manganese producers aimed at upping the shipment of the mineral out of SA.
CJ Swart, general manager of Nexus Roadlink, which operates a storage and handling facility at Lohatla in a joint venture with SCA, said the proposed increases would have forced it to retrench its workforce of about 50 in the Northern Cape.
They would also have threatened the income of the Maremane rural community, which owns land in the Lohatla area and rents it to businesses like his.
Swart said Nexus Roadlink has been operating in the region since 2012 and he questioned why, after almost eight years, Transnet has determined only now that the operations are unprofitable.
Another Transnet customer, who spoke on condition of anonymity, said the threatened increases could limit the access small mines have to export markets, notably in China, as the increases threaten their competitiveness.
The increases also threatened to push the manganese shipments onto road, which was unsustainable in the long term. “Road is not sustainable. There is not enough road capacity as we speak, and it’s higher [priced] and then it will throw the pricing of these guys, on a landed price in China, out.”