Big changes to Transnet procurement policies

Transnet’s board approved revisions to the utility’s procurement policy that could streamline its procurement processes and lessen port congestion.

Transnet informed noteholders today that its board of directors has approved revisions to the company’s supply chain management policy. 

This policy came into effect on 11 December 2023. However, the revised policy allows Transnet to differentiate between procurements directed at operations for revenue generation and procurement of other goods and services for consumption. 

“This will enable Transnet to put in place appropriate procurement mechanisms that will ensure agile sourcing of goods and services for commodities that have an impact on the delivery of goods and services to Transnet customers,” the utility said. 

Transnet said the revisions will now ensure that the maintenance of machinery, equipment, rolling stock, and railway lines is not compromised due to delays in procurement processes.

These delays often result in congestion at the country’s ports, which will hopefully be eased with the implementation of this revised policy.

Transnet has struggled with severe backlogs at many terminals for the past few years, resulting in billions being lost.

For example, Durban is Transnet’s largest container terminal, handling 46% of the country’s total port traffic and over 60% of its container traffic. 

However, the terminal has struggled with multiple backlogs over the past few years and hefty fines from shipping lines. The breakdown of essential equipment has triggered a crisis at the port, a vital artery for the country’s container traffic.

Durban’s two piers lost a combined 265 operational hours in September and October 2023, causing more than 20 vessels to wait at outer anchorage, with berthing delays averaging up to 18 days.

The utility blamed poor weather, equipment breakdowns, and shortages for the significant delays in processing ships.

However, Investec head of logistics Denys Hobson said this crisis has been looming for some time as Transnet’s mismanagement, corruption, and lack of maintenance are the root causes. 

“Warning signs were there. We cannot beat around the bush – corruption was alive and well for a period of time at Transnet, but it is also a case of poor management and leadership,” Hobson told Newzroom Afrika. 

The utility has known for years that its equipment is outdated and has failed to maintain its machinery adequately, resulting in repeated breakdowns, he said.

This was clearly seen in November 2023, when delays at the Richards Bay port resulted in R5 billion worth of goods being trapped, waiting to be processed for import or export, and costing freight companies R98 million a day. 

“This is quite a critical situation, especially considering the backlogs at all of Transnet’s ports,” UJ economist Professor Peter Baur told the SABC at the time. 

Baur said this is nothing new as South Africa has been consistently ranked as one of the worst countries at handling shipping containers, according to the World Bank. 

The average port wait time globally is four to five days, while at South African ports, wait times are up to 20 days.

While most of the focus has been on the delays at South Africa’s largest container terminal in Durban, the crisis in Richards Bay is just as crippling for the economy.

Richards Bay processes the vast majority of the country’s mineral resource exports, particularly coal, which brings in valuable foreign currency and bolsters the country’s trade balances. 

However, there have been significant delays at the port over the past year, which have prevented the export of the country’s most valuable commodities. 

While Transnet’s poor performance was estimated to cost South African miners R150 billion last year, the delays at Richards Bay have left R5 billion of exports stranded. 

Delays at South Africa’s ports have resulted in some mining companies, such as Kumba Iron Ore, cutting production as they have run out of space to store minerals prior to export.