ANDREW SHAW: Transnet pushes ahead with programme to drive industrial and export growth

Given the performance of the SA economy over the past decade or more there can be no doubting the need for drastic change to drive domestic growth while increasing the scale of our exports.

Transnet is playing a crucial part in both of these drives, and recently announced an important step in the process by inviting private sector involvement, through partnerships, in the crucial rail container corridor from Gauteng to Durban.

This is a big part of Transnet’s strategy for the entire value chain, from rail to ports, and includes initiatives it has already announced in respect of ports. In addition, Transnet’s integration of these initiatives into the broader group strategy offers economic value creation along critical parts of the value chain.

Plans to upgrade and develop the Port of Durban are well under way, with the final stage of partner selection due to be finalised by the second half of the year. The port handles 70% of SA’s import and export traffic by value, and such upgrades will not only bring in private sector partners to improve facilities at the Durban container terminal Pier 2, but will enhance the competitive positioning of the Eastern Cape economy through upgrades at the Port of Ngqura’s container terminal near Gqeberha.

The combined effect of this will be profound. First, it will ensure a more efficient and more reliable flow of container traffic into and out of SA, providing a seamless value chain from terminal, on rail infrastructure, and through our ports. The main beneficiaries of this initiative will be economic sectors such as manufacturing, the automotive industry and agriculture, in addition to the second-round knock-on effects into the rest of the economy.

Ensuring the effective integration of Transnet programmes and initiatives remains centre stage, with a contextual view of the system and how each project affects critical parts of the system. It would be remiss to look at these developments in isolation: increasing container capacity at terminals is of no use if there is no rail network to transport this capacity.

For this reason it should come as no surprise that Transnet is focused on building an end-to-end supply chain that integrates terminals, rail and ports. The repositioning of the Port of Durban as a gateway and southern hemisphere hub-port is therefore just as important as enhancing our container terminals’ performance and improving the Gauteng-Durban corridor.

As part of crowding in private sector partnerships in improving the functioning of an integrated transport system, Transnet Freight Rail (TFR) is working on bringing in a partner to operate the container corridor through a 20-year lease, while Transnet National Ports Authority (TNPA) is building landside infrastructure that would see an increase in the water depth to 18m, and the provision of berthing and container handling for larger vessels. TNPA’s master plan for the Durban Port is aimed at ensuring capacity is increased from 2.9-million 20-foot equivalent container units (TEUs) to 11-million in the near future.

In line with its plans to improve container traffic and bring other operators onto the system Transnet undertook a market sounding exercise, which highlighted the importance of, among others, bringing in freight logistics providers (LSPs) or international shippers that were already moving freight by road, and for them to be incentivised to shift this traffic to rail.

Delivering complex supply chains in automotive, retail, manufacturing and agriculture requires solutions that integrate rail into the fuller supply chain offered by such companies. Without this co-developed solution there would be little incentive for the LSPs to bring their freight onto rail. Such companies typically contract with their customers to include a distribution (or last mile) leg, an inventory management component as well as a warehousing and an integration role, often involving multiple distribution centres.

Apart from the supply chain integration benefits of drawing in the private sector, it is just not possible for Transnet to fund the required investment necessary to reform the Gauteng-Durban line to serve these newer supply chain requirements. So, facilitating a transaction in the form of a long-term lease will provide incentives for the private sector to change the operating model, invest appropriately and ultimately to deliver a solution that shifts freight from road to rail.

One option considered was to take the existing slots on the corridor and make these available to the private sector —  after a similar approach to that used on the initial pilot phase for third-party access. The problem with this solution on the Gauteng to Durban corridor is that TFR can neither guarantee the train access performance that new operators require nor make the financial investment necessary to improve the reliability of the corridor.

From this standpoint, a long-term lease (20 years, and then a return to the state) was a far superior option both for Transnet (which has been losing money on the corridor) and the private sector, which would now have far greater control of decisions of how to improve the functioning of the corridor, from a rail infrastructure, terminals and rolling-stock perspective.

It is global best practice. And what about the bogeyman of “international corporations having stranglehold on vital infrastructure”, which has become a rallying point for some? The reality is that there is no demonstrable risk that one monopoly (TFR) would be replaced by another (either a local or global player). Any new incumbent would have to work hard to establish profitability where TFR has struggled to do so, and would need to create a comparable and similarly priced competing logistics service to that of road freight to be successful.

Transnet is being bold in its thinking and is determined to push ahead with its integrated programme to drive industrial and export growth through, among other things, forging productive partnerships with the private sector. Getting this right is not only in the interests of Transnet, but of the SA economy at large.

• Dr Shaw is chief of strategy & planning at Transnet