Transnet crisis forces Kumba to cut billions in investments

South Africa’s largest iron producer Kumba Iron Ore has cut its forecasted sales by 1 million tonnes and has delayed R2 billion of investment in South Africa due to Transnet’s inefficiencies. 

Kumba released a production and sales report for the six months that ended in June, where it said it now expects to sell between 36 million and 38 million tonnes compared to its previous forecast of 39 million tonnes. 

This is despite the company recording a 6% increase in production. Iron ore railed to port decreased by 3% to 18.4 million tonnes in the first half of 2023. 

Kumba previously warned that it was running out of space to store its iron ore before export due to its inability to get its product to ports. 

In its last full-year results, Kumba said that Transnet’s inefficiencies cost the company R10 billion in earnings, halving its full-year profit in 2022. 

The Anglo American subsidiary said that its ability to grow and sustain the employment of its staff is “inextricably linked to reliable logistics services.”

“An efficient logistics system is fundamental to global trade and South Africa’s weakening economic growth,” CEO Mpumi Zikalala said. 

Zikalala said, “Given the uncertainty due to the logistics challenges, the company decided to defer non-critical capital expenditure of R2 billion.”

Efforts to improve the performance of Transnet’s iron ore export channel were derailed by cable theft, resulting in the railway being closed for seven consecutive days. 

Kumba has partnered with Transnet to deploy increased security along the iron ore line from Sishen in the Northern Cape to Saldanha Bay. 

The National Logistics Crisis Committee (NLCC), with members from the government, Transnet and business, has been formed to urgently pursue interventions to address the rail, port and road crises.

Kumba is pursuing longer-term solutions to the problems posed by Transnet, including opening rail and port networks to private operators.

Transnet collapse

Transnet is plagued by criminal syndicates, resulting in 1,600km of cables being stolen from the utility’s railways in the last financial year – incapacitating most of its infrastructure.

Professor of industrial engineering at Stellenbosch University Jan Havenga said South Africa’s rail infrastructure is “going backwards at a horrendous pace”. 

An example of this deterioration is the Durban-Johannesburg rail corridor, designed to transport 70 trains daily but at some points can only transport less than 10 trains per day. 

This has resulted in the amount of freight transported by rail in South Africa decreasing to levels last seen during World War II. 

Freight transported on South African railways has decreased from 230 million tonnes in 2017 to 179 million tonnes in 2022. 

A more serious issue, according to Havenga, is that when railways stand idle, making them a lot easier to vandalise and steal cables from. 

Chief commercial officer at Transnet Freight Rail Bonginkosi Mabaso said that in the last financial year, the utility had over 1,600km of cable stolen from its railways. 

This is a critical issue for Transnet as it is immensely costly to replace and repair thousands of kilometres of cables annually. 

Mabaso said that initiatives from Transnet and collaboration with the private sector had reduced the amount of cable stolen so far in 2023 versus last year.