Transnet’s ‘Back to Rail’ strategy is a much talked about concept within the transport industry, particularly the road freight industry, but there has been very little understanding as to the ‘what’ and ‘wherefores’ of it all – until now.

Transport World Africa’s business breakfast was held at the Killarney Country Club on 19 April 2012 and hosted by FACE2FACE, a 3S Media interactive forum. At the event, Siyabonga Gama, CEO of Transnet Freight Rail (TFR), detailed TFR’s ‘Back to Rail’ strategy. Guided by Transnet’s overriding Market-Driven Strategy, which focuses on bulk transport over distances greater than 250 km, TFR will develop its rail infrastructure along the main transport corridors and a select number of branch lines where financial viability exists – a big client with regular bulk loads. Other than this, TFR will privatise some branch lines and discontinue others. It is also envisaged that company will establish product-oriented bulk depots, e.g. manganese, iron ore, coal, chrome and bulk general goods such as grain in select locations across the country. TFR’s strategy is based on a qualified assessment of the state of South Africa’s current rail infrastructure, costs of repair and maintenance, capital requirements and future market demands.

Rail transport opportunities in South Africa

Looking forward, TFR expects the total transport demand in South Africa to grow to 2 000 Mtpa over the next 30 years, based on the following appraisal:

 

Commodity	Drivers
Coal	–        Driven by Eskom’s consumption and migration from road to rail for power stations –        A sustained strong demand for South African coal with the emergence of China and India as net importers of thermal coal.
Iron ore	Domestic and regional consumption of steel will fuel demand for iron ore and new iron ore export project from Thabazimbi to Richards Bay/Maputo.
Manganese	South Africa’s share of world output is set to grow with expansion projects planned by both traditional miners and junior miners.
Containers	Rail container volumes are expected to increase in line with Freight Rail’s objective of increasing market share along key intermodal routes such as the Natcor (Gauteng to Durban main line).
Cement	Volumes are expected to increase in line with South Africa’s GDP growth (4% on average). Freight Rail is also targeting rail-friendly volumes in this sector.
Magnetite	Demand mainly from China remains strong and is driven by increased steel production. Export growth indicates modest increase and domestic consumption is set to grow once local beneficiation projects are started.
Grain, maize, wheat and foodstuffs	The domestic harvests are approximately 10 Mtpa to 14 Mtpa. Demand represents TFR’s increased share of total market demand as more traffic is shifted from road to rail.
Petroleum liquids/products	Demand projections indicate increased volumes by rail in support of the New Multi Products Pipeline and increased cross-border demand from Botswana and Mozambique.

Justifying Transnet’s ‘Back to Rail’ strategy

Albeit being a little dated, the table below shows South Africa’s cost of logistics, as a percentage of the GDP, relative to a selected range of countries. What is clear is that developing countries generally have higher logistics costs, with transport costs a significant component. For example, South Africa stands at 13.5% whereas Europe stands at 7.0%. This directly impacts the overall competitiveness of the country and the cost of doing business. The principle of ‘more is less’, or ‘economies of scale’, apply.

Table 1: Total logistics costs as a percentage of GDP for selected countries (ranked by GDP)
Country	Survey year	% of GDP
Morocco	2006	20.0%
Finland	2008	19.0%
Thailand	2007	18.9%
China	2006	18.0%
South Africa	2009	13.5%
India	2007	12.0%
Brazil	2008	11.6%
Netherlands	2009	10.1%
Sweden	2005	9.1%
USA	2009	7.7%
Europe	2005	7.0%
Switzerland	2009	1.5%

Considering modal contribution, land freight as a percentage of total tonnes per kilometre, we see that the United States’ (US) rail sector constitutes 41.5%, China 47.0%, India 36%, Brazil 21.7% and South Africa 31%. Given that the US and China are the world’s biggest economies, there is obvious logic in using rail. Also, by comparison, in eurozone countries, rail infrastructure carries a higher percentage of the overall freight transported and is well integrated with road freight services. South Africa is clearly out of sync and the case for moving more of South Africa back onto rail makes a lot of sense.

South Africa’s higher road maintenance costs bear testimony to the greater number of heavy commercial vehicles in service. As such, there is a need for greater tonnages to be transported by rail. In applicable cases, this would reduce the cost of doing business in South Africa. Together, these factors justify the ‘Back to Rail’ strategy.

Commenting further, Gama said that rail should be the backbone for long-distance (>250 km), heavy-load freight volumes. There would be many advantages of moving freight off the road and onto rail. These include:

• a reduction of heavy trucks on our roads
• overall transport and logistics costs will be reduced
• cost of externalities – road damage, road accidents, road congestion, noise pollution, carbon emissions, etc will be reduced
• the impact of rising fuel prices would be minimised.

Transnet’s planned R300 billion infrastructure spend

As was announced by South Africa’s president, Jacob Zuma, earlier this year that R300 billion of the massive infrastructure development drive would be spent upgrading Transnet over the next seven years, R201 billion. The breakdown of this infrastructure spend is reflected in tables 2 to 4.

Table 2: Infrastructure spend by Transnet business divisional
Transnet Division	R (billions)	%
Transnet National Ports Authority	46.9	15.6%
Transnet Port Terminals	32.9	11.0%
Transnet Rail Engineering	3.8	1.3%
Transnet Pipelines	11.4	3.8%
Transnet Freight Rail	201.0	67.0%
Other	4.1	1.4%
Total	300.0	100.0%

This will be apportioned by type of asset as follows:

Table 3: Infrastructure spend by asset type
Asset type	R (billions)	%
Land, buildings and structures	16.5	5.5%
Pipeline	9.4	3.1%
Port facilities	66.3	22.1%
Machinery and equipment	11.8	3.9%
Perway (Railway lines)	71.1	23.7%
Locomotives	77.8	25.9%
Wagons	47.2	15.7%
Total	300.0	100.0%

Table 4: Infrastructure spend by transported product category
Product category	R (billions)	%
General freight (along main transport corridors)	142.9	47.6%
Export coal	32.1	10.7%
Bulk products	31.8	10.6%
Break-bulk	4.0	1.3%
Export iron ore	25.4	8.5%
Containers	24.5	8.2%
Piped products	9.4	3.1%
Other	30.0	10.0%
Total	300.0	100.0%

Partnering for volume growth

Getting a product to depots, if a dedicated rail link is not viable (and there will be many such instances), is an opportunity for the road freight transport industry. TFR is keen to talk to the road freight industry to explore how rail and road can work together to create an integrated and efficient transport service, and create jobs.

TFR is keen to partner with the road, sea and air transport modes to provide end-to-end supply chain solutions for customers. This, according to Gama, must include alliances with logistics service providers (third- and fourth-party logistics) including road hauliers, terminals, warehousing, inland consolidation hubs, multimodal hubs providing intermodal solutions and road-rail technologies.

TFR is in the process of finalising a private sector participation (PSP) framework to guide the introduction and implementation of PSP projects and initiatives in TFR in a consistent and coherent manner. The intention is to leverage the private sector in several areas in order to supplement the volumes and investments in the market-driven strategy growth plan. Identified and potential areas include:

Identified PSP: wagons	Potential PSP: terminals	Potential PSP: infrastructure
specialised wagons for customers PSP arrangements for wagons schemes in baseload industries. bi-modal technologies branch lines. inland consolidation terminals for coal, manganese, chrome inland container and automotive terminals. strategic corridor expansions Waterberg heavy haul rail line (new route) Swaziland rail link.

Given that considerable growth in transportable GDP is forecast for South Africa, road and rail both have a role to play in ensuring economic growth and job creation for South Africa. TFR is determined to win back market share of rail-friendly tonnages through significant improvements in operational performance, targeted and effective capital investments, as well as partnerships to offer innovative logistics solutions to the Southern African region.