Transnet rail network collapse – and you are footing the bill 

The performance of Transnet’s rail network has deteriorated in recent years. As companies cannot rely on rail to get their products to market or ports for export, increasing amounts of freight are transported via road. 

This has severe negative consequences for the state-owned company’s financial health, requiring billions in taxpayer bailouts. It also puts immense pressure on South Africa’s road infrastructure. 

In a research note, The Bureau for Economic Research (BER) outlined how severe and sharp Transnet’s decline has been. 

Between 2009 and 2016, rail accounted for approximately 26% to 27% of total road and rail payload. This percentage has been in steady decline, reaching a low of 15% in 2022 and 16% last year. 

In South Africa, freight rail has predominantly focused on bulk commodities like coal and iron ore and some manufacturing payload, making it critical for economic activity. 

However, most of this freight has shifted to road transport as commodity exporters look for alternative ways to get their products to market. 

Stats SA’s Land Transport Survey shows that, in 2023, South African roads transported 217.5 million tonnes more freight than they did on average between 2012 and 2019, while the rail network transported 56.2 million tonnes less.

This has resulted in Transnet Freight Rail coming under immense financial pressure, with R14.2 billion less income generated by rail transport in 2023 than an average year between 2012 and 2019. 

On the other hand, income generated from road transport increased by R12.9 billion over the same period. 

The BER noted that increased competition in road freight has kept prices low, with increases not keeping up with inflation. This makes this mode of transport even more attractive for businesses. 

Transnet Freight Rail is not the only part of the company affected by this collapse. Many miners have begun transporting their commodities to ports outside of South Africa to get them to market. 

This reduces the revenue generated by the company’s ports division as fewer goods are transferred through its harbours. 

The increase in road freight cannot wholly be attributed to Transnet’s operational issues. The rail network is much like it was in the 1920s, but the road network has expanded significantly. 

South Africa has roughly 750,000 km of roads compared to roughly 22,000 km of rail. In addition, the location of mining and manufacturing activity has changed since the initial construction of the railways, leaving many without easy access to the network. 

The decline in rail freight and the corresponding rise in road freight can be seen in the graphs from the BER below.

This decline has severely impacted Transnet’s financial health, with the company collapsing from posting a R5 billion profit in 2019 to a net loss of R5.7 billion in 2023. 

South Africa’s second-largest state-owned enterprise (SOE) now has over R120 billion in debt. 

In a recent research note, Coronation’s Humaira Surve explained Transnet’s collapse, saying the company has a good chance of turning things around with the right management. 

Surve flagged the substantial effects of theft and vandalism on the company’s rail infrastructure as one of the key reasons behind its poor performance. 

For example, over half of all substations on its most important line connecting Durban to Gauteng were offline. 

This means that electric locomotives, which are extremely cost-effective, cannot run on half of the corridor, which requires the use of diesel locomotives on the affected sections. 

Further, the theft of signalling systems has led to manual authorisations and speed restrictions being implemented, creating excess expense and reducing network capacity. 

Another major problem is the lack of maintenance done on ageing infrastructure, which has capped the speed of locomotives on key corridors. 

In other areas of the network, sections of the railway lines are inoperable for 12 hours a day. 

The poor infrastructure management has been compounded by severe weather events, which have severely limited the usage of the Durban-Gauteng corridor.

Transnet’s disastrous financial situation also means the utility cannot invest in upgrading its infrastructure, ensuring it remains inefficient for years to come. 

As a result, the SOE has turned to the government for additional funds to invest in infrastructure and maintenance. 

In reality, this money comes from South Africa’s heavily burdened tax base, requiring the government to squeeze greater revenue from the same set of individuals. 

So far, the National Treasury has granted Transnet R47 billion in financing with strict conditions. However, much more is needed to halt the company’s collapse and allow it to invest in its assets. 

The decline of rail freight in South Africa also has significant implications for the condition of the country’s road network, putting immense pressure on infrastructure. 

Rail transport consumes a quarter of the fuel used by road transportation, making it particularly attractive for transporting commodities and other goods over long distances, Surve said. 

By removing heavy freight from roads, traffic volumes would be substantially reduced, as would the damage and cost to maintain the road network. 

From a social perspective, increased rail usage in South Africa would make our roads safer for all users and lower the cost of consumer goods through lower transport costs.

Road Freight Association CEO Gavin Kelly told eNCA that it has become increasingly difficult to ensure their trucks remain roadworthy due to the deterioration of road infrastructure. 

“You have to make sure that your vehicle is in pristine condition. Tires are one of those things, and as I’m sure you’ve all noticed, our roads are not in as good a condition as we’d like them to be,” he said. 

“There are a lot more potholes appearing. Maintenance seems to have taken a backseat. That means far more damage to tyres, suspensions, brakes, and even brake linings and couplings.”

For example, he said his organisation’s members have noted that their tyres’ lifespan is declining rapidly.

“Their lifespan, which might have been 80,000 to 100,000 km on a tyre, is now drastically reduced depending on the types of potholes that are appearing and the types of roads and how they are beginning to disintegrate.” 

“That’s becoming a huge expense, and tyres are expensive. The price of tyres went up last year by a good 37%, which greatly impacts the cost per kilometre and, of course, the price you and I will pay,” Kelly said.