South Africa

Transnet recovery far too slow 

Transnet’s turnaround plan is on track, but progress is far too slow, threatening jobs and the country’s economic recovery.

For years, Transnet has faced prolonged operational and financial challenges. This has come at a significant cost to the utility and the South African economy.

The National Treasury estimated that rail inefficiencies cost the South African economy over R400 billion in 2022. 

Meanwhile, the Minerals Council of South Africa reported that mining exports missed their target by R50 billion due to Transnet’s inefficiencies.

The poor performance of the country’s freight rail system has led to increased iron ore stockpiles at mines and reduced coal railings to a 30-year low. This has forced producers to rely on trucks, congesting roads and ports.

In addition, the lacklustre performance of Transnet’s ports across South Africa is also increasingly resulting in shortages in the supply of goods critical to the functioning of local businesses. 

This hampers their ability to operate effectively, resulting in reduced income and, in some cases, job cuts. 

Most of the focus regarding the impact of Transnet’s port crisis has been on the inability of miners to export their commodities to global markets. 

This has cost the South African economy billions in lost economic output and foreign exchange earnings, with mining companies resorting to trucking their products to Maputo for export. 

The inefficient operation of South Africa’s ports also affects companies that import goods sold to local consumers or need foreign equipment for manufacturing purposes. 

Retailers, in particular, have been hit hard, with many relying on imported clothing from China and other Asian countries to stock their stores. 

These operational failures have also affected Transnet’s financial health. The utility recently released its results for the six months ending September 2024.

In the results, Transnet said it believes it “has made progress, with early successes in stabilising its operations, improving financial performance, and addressing infrastructure challenges”. 

However, the utility reported a R2.2 billion loss, a worsening from the R1.6 billion loss recorded in the same period the previous year.

This was mainly because of operational slippage in the container port division, which partially offset a small 3.2% increase in rail freight volumes.  

Container volumes also declined to 2.12 million twenty-foot equivalent units (TEUs) compared to 2.14 million previously. 

Transnet attributed this decline to weaker demand, a lack of equipment and adverse weather. 

Transnet CEO Michelle Phillips

Claire Bisseker of the Bureau for Economic Research’s Impumelelo Economic Growth Lab said these results underscore the urgent need for fresh investment in port infrastructure. 

Part of Transnet’s turnaround plan centres around opening some of its operations to private third-party players.

Transnet entered into a significant partnership with International Container Terminal Services Inc. (ICTSI), a Philippines-based port operator, as part of its strategy to improve port operations and attract private investment. 

ICTSI secured a 25-year concession to develop and operate Durban Container Terminal Pier 2, South Africa’s largest container terminal, handling 72% of the Port of Durban’s volume. 

This partnership is a key element of Transnet’s turnaround plan, which aims to modernise the utility’s infrastructure, enhance efficiency, and boost competitiveness in the global shipping industry. 

However, the deal has been criticised by labour unions and stakeholders concerned about potential job losses and the privatization of state assets.

This criticism came to a head in 2024 when the KwaZulu-Natal High Court issued an interdict halting the implementation of the 25-year concession agreement.

This followed a legal challenge by APM Terminals, a subsidiary of Maersk. APM Terminals argued that ICTSI did not meet the tender’s solvency requirements, alleging that ICTSI’s method of calculating its solvency ratio was inconsistent with the stipulated criteria.

ICTSI sought to appeal the interdict, arguing that the court erred in its decision and that the findings damaged its reputation. 

However, in December 2024, the court denied ICTSI’s application for leave to appeal, maintaining the suspension of the partnership’s implementation. 

Therefore, Transnet’s process of securing a private port operator to manage Durban’s Pier 2 Container Terminal is in limbo, preventing the utility from progressing with its plans.  

This is not to say that Transnet has not made progress in its turnaround.

The utility’s recent interim results showed that Transnet Freight Rail volumes rose to 78 Mt from 75.6 Mt over the equivalent period in 2023. 

However, Bisseker said that, though the constant fall in volumes of key exports, including coal, has been arrested, at this glacial rate of improvement, Transnet will fall far short of its whole-year freight rail target.

The utility aims to hit its target of 170 Mt for 2024/2025, up from 151.8 Mt in 2023/2024.

“The Recovery Plan’s goal is for rail volumes to recover to 226 Mt by the end of 2026, restoring Transnet’s performance to the level of five years ago. Anything less will threaten jobs along the supply chain,” Bisseker said. 

“The bottom line is that Transnet is performing below the government’s Recovery Plan and well below the volumes required to support an economic recovery.”

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