R50 billion lost – and more to come

South Africa’s port and freight-rail operator Transnet declared force majeure across all harbours after its employees began a wage strike. The situation will cost the country billions.

Transnet invoked the clause in anticipation of some of its operations being “scaled down,” the state-owned company said in a notice to its customers.

The strike by two labour unions at Transnet threatens to curb trade in materials, including coal, iron ore, chrome, and manganese.

It is because the company’s rail and port networks are key to South African exports of bulk commodities.

It’s the fifth time in the past two years that Transnet has declared force majeure. Events which caused it include:

• Riots in KwaZulu-Natal in July 2021.

• A cyber-attack that incapacitated its container terminal.

• A fire that disrupted bulk shipments.

The potential disruptions hit shares in Thungela Resources, the nation’s biggest shipper of thermal coal, and Exxaro Resources, the biggest fuel miner, hard.

Big loss to the economy

Minerals Council South Africa CEO Roger Baxter said existing logistics constraints at Transnet are expected to cost South Africa’s mining industry R50 billion.

The poor performance of Transnet rail lines and other infrastructure is as bad for the industry as the regular power outages Eskom is implementing.

Transnet links South African mines by rail to the nation’s ports. It includes an 861-kilometre iron-ore line that connects deposits in the Northern Cape to Saldanha Bay and another for coal and other minerals from Mpumalanga to Richards Bay.

Transnet said the main impediments related to rail capacity remain the rampant theft and vandalism of infrastructure and equipment.

There is also a shortage of locomotives due to the refusal of original equipment manufacturers to sell spares to Transnet.

Other challenges include deteriorating infrastructure and reduced income due to lower production.

Hugo Pienaar, the chief economist at the Bureau for Economic Research, said it is extraordinary that Transnet has declared so many force majeure over the last two years.

He added that with South Africa’s already limited power and functioning port and rail infrastructure, the strike and force majeure would cause significant damage to the economy.

Pienaar said the strike would compound the R50 billion in lost revenue because of inefficient Transnet infrastructure.

“Union leadership constantly rant against the high cost of living and unemployment in South Africa,” Pienaar said.

“Equally, society should be ranting against the consistent economically-destructive behaviour of unions.”