Best news for South Africa’s economy in years

The resolution of the court case regarding the contract for Philippines-based International Container Terminal Services (ICTSI) represents the most significant development in South Africa’s economy in recent years.

This effectively marks beginning of the private operation of South Africa’s largest container terminal in Durban’s port, with the contract first being awarded in 2023.

As a result, it represents the beginning of an era where the private sector plays a much bigger role in South Africa’s economy than ever before.

The private operation of Durban’s container terminal is aimed at reducing the delays and bottlenecks that have characterised it in the past.

In the most recent Container Port Performance Index, compiled by the World Bank and S&P Global Ratings, Durban came stone last among the 403 ports surveyed.

This was despite interventions from Transnet to modernise Durban’s equipment, including tugboats, ship-to-shore cranes, and haulers.

The steady deterioration in Durban’s efficiency over the past 15 years led to calls for it to be privately-operated, with Transnet’s balance sheet no longer adequate to invest in the port.

In 2023, ICTSI entered into a 25-year partnership with Transnet to operate the container terminal in Durban, the largest in Africa.

Transnet will have a 51% share in the joint venture, and the utility will remain the employer of workers contracted out to ICTSI. The private company will have management control and will be fairly free to introduce change.

However, ICTSI is yet to do anything at Durban’s container terminal due to numerous delays, particularly as a result of AP Moller-Maersk’s challenge to the awarding of the tender.

Maersk aimed to get the court to set aside the tender on the grounds that it was full of irregularities, particularly the solvency test used by Transnet. 

Earlier this month, the Durban High Court dismissed the case, with Transnet saying it removes a major hurdle preventing the company from focussing all its energy on modernising and expanding the container terminal. 

Stanlib chief economist Kevin Lings said this was a vital development for South Africa’s reform agenda to deregulate sectors of the economy and stimulate private investment in key network industries. 

“To me, this is the most encouraging development in South Africa for quite some time and I think we can now be hopeful that more investment will occur in Durban’s port and generally improve its efficiency,” Lings said. 

“The sooner that happens, the better South Africa will be in terms of showing that the private sector can make a difference to some of the large infrastructure initiatives.” 

Lings explained that a positive impact from ICTSI at Durban’s container terminal will likely lead to more such initiatives occurring, which will benefit the local economy immensely. 

Zero to hero

The private operation of Durban’s container terminal promises to bring significant improvements to the port’s efficiency and is a symbol of broader developments in South Africa’s logistics sector. 

This is not to say ICTSI’s job will be easy, nor will it be a quick turnaround at the port, with over a decade of mismanagement likely to take years to fix. 

Crucially, ICTSI has experience in dealing with unionised labour in the Philippines, which should enable the company to operate effectively with Transnet’s workforce. 

The company is expected to overhaul the port’s management structure and operational systems, focusing on automation and digitisation. 

ICTSI may also be limited by the poor performance of Transnet’s railways, which often results in bottlenecks in getting goods to and from the port. 

Without an efficient logistics system, a well-functioning port is unlikely to result in significantly better outcomes for South Africa. 

The private operation of Durban’s container terminal is being coupled with the concessioning of particular rail corridors to private companies. 

This should result in the overall logistics system becoming more efficient as these companies invest heavily in maintaining and upgrading infrastructure. 

And so, broadly, this is seen by analysts as Transnet finally executing on its turnaround strategy, which has already borne fruit. 

Business for South Africa (B4SA) outlined this turnaround during its most recent briefing on the progress being made with the government’s partnership with big business. 

As part of the partnership, Transnet implemented a formal Recovery Plan, backed by new leadership and a R51 billion government guarantee. 

Since then, the results have been clear, with Transnet’s rail volumes beginning to recover and its port efficiency improving. 

Over time, with investment in infrastructure, improvements in maintenance, and creating a performance culture at South Africa’s ports, they have reduced the handling time to just two days, B4SA revealed. 

Rail volumes have recovered to 171 million tonnes, up 15% from mid-2023, due to a significant reduction in vandalism of infrastructure and investment in new equipment. 

Truck border queues have been reduced from an average of 19 kilometres to just three, and over 1,700 trucks are being processed daily.