PORTIA DERBY: How we are getting Transnet back on track

From the outset it was clear that repositioning Transnet to ensure it becomes the economic growth driver it has potential to be, and not a constraint on the logistics chain, would be a mammoth task.

Just two years ago the operating model was to sustain the monopoly in rail, ports and pipelines, supported by a continued reliance on debt funding that had by 2020 already reached its ceiling, as set by the National Treasury. That model is no longer sustainable, not just for Transnet but also for the economy.

The early work, which began in 2020, focused on repositioning the company to focus on three key commodity groups (representing 85% of revenue), each offering different strategic approaches to how Transnet would work with partners — either logistics service providers or cargo owners. These groups are:

• Complex integrated logistics value chains including containers, automotive and agriculture.
• Bulk commodity value chains in mining including coal, iron ore, manganese, ferrochrome and magnetite.
• Energy logistics including liquid fuels and gas.

In these two intervening years Transnet experienced challenges that undermined our ability to rapidly respond to the needs of these segments we had hoped to position for.

First, the effects of Covid-19 rapidly undermined Transnet’s ability to generate revenue, with demand collapsing after starting from an already low economic base (economic activity decreased by 7% in 2020), fuel usage all but stopping, and container throughput declining.

Second, and shortly thereafter, given the depressed economic environment, we experienced increased cable theft and in some instances steel theft on the rail network, and theft of liquid fuel from the pipeline.

Maybe the most critical underestimation was the intractability of the challenges resulting from the compulsory setting aside of the original equipment manufacturer (OEM) supply contracts for 1,064 locomotives, and associated resistance to reaching just and equitable settlements to avoid protracted legal processes and enable continued delivery of locomotives and spares.

The challenges with the Chinese locomotive OEM mean we cannot secure spares and parts for even locomotives other than the 1,064 mentioned above. This means we have not been able to move goods as a result of a shortage of locomotives. The effect has been pervasive on coal, magnetite and ferrochrome, and it has also been felt on manganese flows. We have not yet broken the back of the locomotives issue, and while there may be some light at the end of the tunnel, we are still challenged.

Our response to these challenges has been to be much more targeted and focused, upping the available fleet by working with service providers to re-engineer parts for certain locomotive types, and to target security of the network, specifically the theft of copper, through the use of technology and performance-based security contracts. 

On security, we are partnering with all organs of the state but also clients and the farming community, especially with regard to rural safety plans. We are also looking to engage our communities to assist with protecting our assets located in their communities.

At an operating level, there is a keen focus on back-to-basics and driving accountability to managers on the network and in the ports. While performance remains suboptimal on parts of the network, we are working to improve our reliability and volume throughput.

Transnet has also accelerated its segment strategy delivery focus. In containers, autos and agriculture, strong and meaningful partnerships are in the transaction delivery stages, with container terminal requests for proposals in the ports of Ngqura and Durban, and inland terminal transactions under way for Kaalfontein and City Deep.

The partnerships are intended to improve Transnet’s response to demand, while increasing profitability and dynamism in the different segments. This is also part of the Transnet National Ports Authority’s (TNPA’s) strategy of building a truly globally competitive container hub at the Port of Durban, a game-changer for SA’s competitiveness, focused on substantially reducing sea-freight rates for our exports.

Transnet Port Terminals (TPT) is keenly attuned to the need to improve port operations and equipment maintenance. To this end, TPT is overhauling its operating model, but does require the assistance of the shipping lines and logistics community for these interventions to reach their full potential. Simultaneously, the first phase of open access to the railway network for third-party operators will be operationalised on the Gauteng-to-Durban rail corridor. Our objective remains to bring as much freight off the roads and back to rail as is possible. The SA economy, Transnet and its partners will benefit from this outcome.

The same basic model is applicable in the automotive and agriculture sectors, where partnerships are proposed to create efficient hubs for key product aggregation at logistics centres adjacent to railway lines, supported by railway slot access for new operators. Through the rail, port and terminal operations, Transnet is committed to contributing in growing the local auto manufacturing industry and making it globally competitive. While Transnet Freight Rail (TFR) will continue to service all these existing markets, the introduction of independent rail operators through the slots system will make rail truly contestable and competitive for the first time.

In bulk commodity solutions, Transnet’s focus remains targeted on reinvesting in rail and port solutions that build volume and empower mining exports, especially from junior miners, which often struggle to gain viable logistics solutions. Our analysis shows that in ferrochrome, magnetite, iron ore and manganese, there is huge untapped demand for export growth of as much as 60-million additional tonnes per annum. In partnership with the mining community and through project-based funding, Transnet is working on solutions to increase volumes to take advantage of the gains in the commodity prices.

A critical constraint that needs urgent attention is addressing the backlogs in infrastructure maintenance that would remove speed restrictions. Improving speed and reliability on the railway network will require increased maintenance spending and, in some cases, rehabilitation, both of which could be funded through concessionary funding.

In the energy segment, Transnet Pipelines is shifting focus from complete reliance on liquid fuels to expand into natural gas, and TNPA has issued a request for information to develop a liquefied natural gas terminal at the Port of Richards Bay, and a partnership between Transnet, the Central Energy Fund and the industrial development zone is proposed to do the same at the Port of Ngqura. These interventions are key to changing the energy mix for SA and establishing more competitive sources of energy for enhancing our manufacturing exports.

While the immediate operating environment remains challenging, progress is being made to reverse the shortcomings and reposition the company to benefit from the pent-up demand to move traffic by rail and through the ports. I remain optimistic that this turnaround can be achieved rapidly, and that it will truly reposition Transnet as a conduit of growth in minerals, mining, manufacturing and agriculture, which are the sectors that contribute so strongly to the growth of our economy and generate much-needed employment.

It is imperative that we get it right!

• Derby is group CEO of Transnet.