Break up Transnet to solve South Africa’s rail and ports crisis

Unbundling Transnet and employing public-private partnerships will allow the government to maintain control over the utility while implementing much-needed reforms.

This is the view of BMI senior operational risk analyst Lerato Mzezewa, who expects privatisation efforts at Transnet to remain in the form of public-private partnerships.

This will allow the state to maintain control over core assets while leveraging private expertise for operational improvements, security enhancements and broader financial contributions. 

From April 2024, Transnet Freight Rail split into two specialised units – Transnet Rail Infrastructure Manager (TRIM) and Transnet Freight Rail Operating Company (TFROC). 

TFROC will manage rail freight, yard operations, train safety and rolling stock, while TRIM will handle the rail network’s operation and upkeep. 

This restructure aims to reduce inefficiencies, define responsibilities and boost coordination at the utility, ensuring more punctual schedules and faster cargo handling.

Transnet is now offering private entities the opportunity to acquire rail slots for independent operation.

Mzezewa described this as a strategic move to channel private investment into revitalizing Transnet’s dated infrastructure and operation systems and strengthening security measures against vandalism and theft. 

In addition, to draw in significant private sector commitment, Transnet is extending rail slot leases to three to five years, demonstrating a firm pledge to modernise and streamline the rail network.

While Transnet has set ambitious freight rail volume recovery targets, BMI forecasts only a modest 1.4% year-on-year growth for 2024, considering the extensive security and maintenance work required for a notable turnaround. 

Other factors weighing on the turnaround are private sector concerns regarding high investment tariffs within the rail restructuring plan, potential operational inefficiencies and regulatory ambiguities.

These factors may slow the utility’s reform momentum and curtail the anticipated rise in rail freight volumes.

BMI also expects ongoing private sector partnerships in the ports sector, with equipment upgrades and asset modernisation set to bolster the utility’s operational capabilities. 

Mzezewa said persistent inefficiencies within South Africa’s maritime sector are presenting significant headwinds to the country’s economic growth, mirroring the challenges faced by the rail network. 

For example, congestion at major ports such as Durban, which handles about 65% of the country’s bulk freight, and Cape Town is primarily due to ageing infrastructure, equipment shortages and a lack of modern facilities, resulting in prolonged ship wait times and slow cargo unloading. 

Transnet has taken steps to address these inefficiencies, most notably by partnering with Phillippine-based International Container Terminal Services Inc. (ICTSI).

ICTSI is set to take over Durban’s container terminal after entering into a 25-year partnership with Transnet earlier this year. 

However, this plan could be subject to significant delays due to a recent legal bid that disputes the deal between Transnet and ICTSI. 

Earlier this year, AP Moller-Mærsk’s port operating unit, APM Terminals, launched a legal bid in South Africa to question the validity of Transnet’s decision to award the 25-year concession to ICTSI.

This is a problem, as skilled operator shortages and frequent machinery breakdowns are pushing international companies to consider alternative ports outside South Africa, like Walvis Bay, Maputo and Dar es Salaam.

While these ports are often smaller or less well-located than Durban’s, they are gaining business owing to lower congestion and more reliable handling times.

BMI’s 2024 forecasts suggest that these emerging ports will experience higher annual growth in total tonnage throughput compared with the flat growth expected at Durban for 2024.

However, the organisation does forecast a rise in container throughput growth across South Africa’s major ports in 2024, driven by heightened import demand. 

Durban port container throughput is expected to increase by 11.1% year-on-year.