THERE is no doubt that the international community is closely observing South Africa’s freight transport crisis, and especially national operator Transnet, and wondering what exactly is happening.

Transnet has experienced a shocking year or two, to say the least. Observers describe the most recent crisis as a complete failure of its port and rail infrastructure. On November 22, the South African Association of Freight Forwarders noted that there were “96 vessels waiting at anchorage outside our commercial ports, directly costing the economy Rand 98m ($US 5.28m) a day in direct, sunken costs, at least Rand 26m a day in indirect costs, and impeding at least Rand 7bn worth of goods from moving every day.”

Adding to the woes, on October 26, officials announced that Transnet Freight Rail (TFR) will need more than Rand 50bn in investment in the next five years to increase capacity and improve performance.

On November 1, South Africa’s finance minister, Mr Enoch Godongwana, presented the medium-term budget policy statement in which he observed: “no modern economy can thrive and grow new industries if rail lines are beset by delays, and ports are unable to efficiently handle incoming and outgoing cargo. Transnet’s performance in this regard has been underwhelming and its operations have been strained by a worsening financial state.

“Recognising the seriousness of the situation, the National Treasury is collaborating with Transnet and the Department of Public Enterprises to ensure that Transnet can meet its immediate debt obligations,” Godongwana continued. “Broader reforms of the logistics sector will be guided by the freight logistics roadmap. The roadmap outlines a clear path for enhancing efficiencies, introducing competition, and leveraging the financial and technical support of the private sector. Only once these three objectives are reflected in Transnet’s corporate and operational plans, will there be a discussion about whether and how the government can provide financial support to transform the logistics sector.”

During this period, Transnet lost two CEOs, cancelled the pilot phase tender for open access, and presented its recovery plan. While the plan might be modified to address what is happening right now and meet immediate challenges over the next 18 to 24 months, at least it is sound.

The National Treasury will continue to work with Transnet to pursue other initiatives to revive its operations and financial viability.

On December 1, Godongwana agreed with the minister of public enterprises to issue Transnet with a Rand 47bn guarantee facility, which is effective immediately and will support the recovery plan and meet its immediate debt obligations. Transnet will draw down an initial Rand 22.8bn to address immediate liquidity needs, such as settling maturing debt.

The government has rejected an equity injection because the 2023-24 budget is closed and it is confident that the guarantee facility, alongside the swift implementation of the Transnet recovery plan, will be sufficient to resolve Transnet’s difficulties.

The guarantee will include strict conditions that will be continuously reviewed and amended as necessary. Any further draw downs will be subject to Transnet meeting these conditions.

The National Treasury will continue to work with Transnet to pursue other initiatives to revive its operations and financial viability. Transnet will explore divesting non-core assets, a reduction of its cost structure, and alternative funding models for infrastructure and maintenance requirements. The latter includes but is not limited to, project finance, third-party access, concessions, and joint ventures.

It is interesting to note that Transnet currently relies on manual processes for train planning and scheduling, resulting in a lack of integration. This manual approach not only allows for potential manipulation, as seen in recent incidents of ghost trains, but also causes delays in scheduling, particularly when resolving issues. These inefficiencies significantly impact customer service, operational effectiveness, and the broader economy.

During a recent inspection tour with Transnet leadership, TFR’s acting infrastructure manager and general manager, rail network and projects, Ms Bessie Mabunda, highlighted TFR’s commitment to digital transformation to enhance efficiency. A key component of this strategy is a new integrated train planning tool, which is being implemented. The system is designed to automatically and optimally replan or reroute trains and will facilitate not only scheduling and planning but also efficient tracking and tracing of trains, locomotives, and wagons, especially during disruption. This tool is one of many being explored to improve operational performance.

Theft and vandalism

The impact of theft and vandalism on Transnet’s rail network alone could have brought the organisation to its knees. Aside from the cost of continually replacing stolen infrastructure, the impact of delays alone is beyond comprehension; one incident can almost bring the system to a complete standstill or slow train operations down to a snail’s pace.

Your author experienced exactly that on a recent inspection tour with Transnet. What was once an hour-and-a-half journey can now take five hours or more, which has a huge impact on operating costs. For train crew, what used to be four or five return trips in a shift is probably now just one and in one direction only.

In August, Transnet introduced an outcomes-based security (OBS) solution to combat theft and vandalism on the rail network. Transnet awarded contracts to five security service providers to protect TFR corridors. They will introduce the latest state-of-the-art crime-fighting technologies, including early warning detection systems to combat theft, damage, and vandalism of essential infrastructure. The contractors will be held accountable for the security of the network and ensuring that trains are not cancelled or delayed because of security-related incidents. So far, some improvements are being recorded.

“Our government is supporting us in several areas, such as our procurement processes, which are significant enablers.”

Mr Russell Baatjies, TFR’s acting CEO

Other initiatives to address theft and vandalism include finding an alternative to copper cables in high-risk areas. Reducing cable theft also means that TFR can turn trains around faster, for a more efficient service. As part of efforts to improve the condition of the network and increase capacity, TFR is reinstalling some signalling equipment, with most expected to be in operation by next month.

Transnet, in collaboration with the National Treasury, is focusing on modifying the Public Finance Management Act (PFMA). The objective is to introduce procurement reforms, enhance agility and support the recovery plan. The current procurement procedures have significantly hindered Transnet’s efficiency.

“Our government is supporting us in several areas, such as our procurement processes, which are significant enablers,” Mr Russell Baatjies, TFR’s acting CEO, explained during the inspection tour. “We are looking at ways to fast-track these processes that have traditionally been time-consuming while ensuring compliance from a governance standpoint. Considering our recent history, governance is crucial, and we need to stay on the right side of it. However, we are exploring different methods to expedite these processes, so they don’t take an excessive amount of time.”

Open access

Transnet met the deadline to establish an interim infrastructure manager (IM) by October 31, which has been one of the major hurdles in opening the rail network up to third parties. This will come into effect in April. The industry is just waiting for the network statement to be issued. However, this does mean that vertical separation has been completed and TFR will be split into two entities: Transnet Rail Infrastructure Manager (Trim) and Transnet Freight Rail Operating Company (TFROC). The latter will be responsible for rail freight operations, yard operation and train safety as well as rolling stock ownership and management.

Currently, Transnet is compiling all the necessary documentation to facilitate third parties to capitalise on the new opportunities presented by the move towards open access. This includes a network statement, which will outline the physical characteristics of the network, the specifications of trains that can operate on the system, and the conditions for access. It also describes the services offered, such as train marshalling facilities.

In parallel, an access charging system is being developed that has involved extensive benchmarking against railways abroad that have experienced similar reforms, such as in Britain, Germany, Australia and Brazil. The network statement, access agreements and charges will be published on April 1.

The cost of restoring the network to the level required is estimated at Rand 31bn. To restore the network, a team of highly skilled project managers and engineers, previously part of the Transnet Group Capital, has been integrated into various divisions. Their role is to conduct feasibility studies, develop engineering designs, and carry out project management.

Additionally, there is another little-known internal asset within Transnet, Rail Network Construction (RNC) which is a highly skilled and experienced construction company, with the requisite level of capability, competencies, and skills needed for successful execution of some of the work that will be needed.

In April 2023, Transnet Engineering (TE) launched a tender aimed at establishing a joint venture rolling stock leasing company called Transnet LeaseCo. The new entity would start by leasing locomotives to new operators and then add wagons and other ancillary equipment later. The objective is to lower the barriers to enter the rail freight market and provide a new revenue stream for TE.

During the inspection tour, Ms Michelle Phillips, acting CEO of Transnet Group, confirmed that the process has not yet been completed and that setting up LeaseCo is very much part of the turnaround plan. The announcement of its creation is expected within the next six months, and it will probably take another 12 months before LeaseCo becomes operational.

Transnet has been trying to improve the performance of the North Corridor with the primary objective of decongesting the Port of Richards Bay as part of the recovery plan. The North Corridor handles roughly 41% of total TFR volumes, generates 38% of TFR revenue, and supports critical markets that contribute approximately 3% of South Africa’s GDP.

TFR is currently ramping up the service to the port by adding seven coal trains per week by mid-December, bringing the total number of weekly trains to 28. This equates to about 15,400 tonnes per week. Between December 2023 and March 2024, TFR will introduce another seven trains, resulting in 35 trains per week.

TFR is working with road carriers and the municipality of Richards Bay to reduce congestion at the port. A last-mile strategy is planned whereby road hauliers will take freight to inland terminals and TFR will provide a shuttle service into the port. TFR hopes to introduce this service in March.

The Transnet Board is fully behind the senior management team in driving the change required. There is also a far more positive attitude towards private-sector participation and customer engagement. The new leadership appointments are expected to be announced by next month at the latest. However, 2024 is an election year, and responsibility for Transnet is set to transfer from the Department of Public Enterprise to the Ministry of Transport.