Road to Rail Strategy: Transnet progress report

Meeting report

Transnet Freight Rail: Road to Rail Strategy (Progress)

Mr Ravi Nair, Acting Chief Executive: Freight Rail, Transnet relayed an apology from Mr Siyabonga Gama, Transnet’s Acting Group Chief Executive, who was in Maputo and would not be able to attend the meeting. The presentation would highlight Transnet’s road to rail strategy and the progress made to date. It would also look at some of the key challenges and achievements in that regard. The Transnet Group was made up of the Transnet National Ports Authority (TNPA), Transnet Port Terminals (TPT), Transnet Engineering (TE), Transnet Freight Rail (TFR), and Transnet Pipelines (TPL), supporting capital projects, the Transnet Foundation, property and Transnet school.

He took the Committee through the history of Transnet Freight Rail, which began in the 1980’s. Transnet’s tonnage and volumes had been in decline for many years, but when the Market Demand Strategy had been launched in 2012 -- with an emphasis on massive capital investments and moving additional tonnage by rail -- the “death curve” had been arrested and the situation had started to improve. The fundamentals of Transnet’s Market Demand Strategy were economic growth, job creation, regional integration, correcting the road-rail freight industry imbalance, reducing the cost of logistics and meeting freight demand and improving service delivery. Transnet Freight Rail had six pillars for its Market Demand Strategy. These were market development, operational efficiency, capital investment, regional integration, safety and people.

Transnet Freight Rail’s goals were to be in the top five railways in the world, to be financially sustainable, to be the employer of choice and to reach a “gold standard” in its operations and capital executions. One of the main achievements around regional integration was that Transnet Freight Rail had, in the last two years, established joint operating centres with all of the neighboring railways -- Mozambique, Zimbabwe, Botswana and Namibia. Between 2012 and 2014, TFR had experienced a 4.7% increase in volumes in total. However, on the general freight side, which included road to rail, in the same period TFR General had increased by 8.6%. The figures for 2014/15 had not been put up yet because they were still subject to being finalised by the auditors.

TFR would in the next few months be piloting a road-rail solution. This was a truck/trailer which had rail wheels and rubber wheels, which meant it could go on both rail and road. TFR had gone out on tender, and the tender had been awarded to local organisations. TFR was very excited about this. It was not competing with trucks, but rather collaborating with them. Trucks would do the short haul and TFR would do the long haul. TFR understood that there was no “one size fits all for all customers”, but it was committed to building alliances to fast track opportunities. One was with Barloworld Logistics and the other was with a Black Economic Empowerment (BEE) company which had just launched the first South African flag-carrying vessel, which would assist TFR in getting some of its commodities to the overseas market.

TFR had purchased new locomotives to the value of R250 billion, therefore part of the strategy was to improve the rail networks. With regard to the heavy haul lines, there had been a decline in export coal in 2013/14 mainly as a result of the world commodity markets, which had crashed. However, the 2014/15 figures represented a 11.9% improvement year on year. TFR was static on exporting iron ore and manganese. TFR had a number of successes, especially around mineral mining and chrome, where between 2013 and 2014 the company had experienced a 14.9% growth, from 16.1 million tons, to 18.5 million tons. This was an indication of the traffic which had been brought from road to rail.

He said growth in the agriculture and bulk liquids sector had been rather static because of the customers who were using branch lines. TFR’s container and automotive side had been another success story, where growth of 28.7% had been experienced. The growth had been mainly due to containers being moved from road to rail, and new automotive wagons were being built. There was a marginal improvement on steel and cement. TFR’s security around containers had also been drastically improved.

Some of the challenges experienced by TFR on accelerated growth on the road to rail strategy had mainly been due to the failure of locomotives. Some of the locomotives were very old, but the fleet was being improved. 150 new locomotives, from the 1 064 which had been ordered, had arrived, and another 350 would arrive before the end of the year. TFR was also building 3 000 new wagons to improve on wagon availability. Other challenges included customer cancellations, power failures, tippler failures, emergency occupations, shutdown delays, industrial action and economic conditions.

In 2013, TFR had launched six business units targeting specific commodities across the shared network. With regard to TFR’s commodity strategy on manufacturing and manufactured goods, TFR was committed to growing steel and cement products, intensifying market penetration around containers and palletized freight, growing its share of vehicle and component transportation and maintaining its share of fuel prior to the National Multi Product Pipeline (NMPP) migration. TFR was looking at deploying 700 more locomotives to the agricultural side. 100 locomotives would also be deployed for transporting timber. TFR was also committed to improving cross border traffic, focusing on the North-South corridor, which would reduce the asset cycle time from 20 days to 6 days. TFR was also in negotiations to move copper, which runs from Zambia to Richards Bay and Durban by rail. TFR was working very closely with Eskom on customer collaboration and capacity creation for the road to rail shift.

With regard to creating the fundamentals for logistics development and rail migration, he reiterated that new locomotives were coming in. These were dual voltage locomotives which would reduce throughput time and improve service reliability. In Bloemfontein, TFR was containerizing manganese. The new locomotives were going to be deployed across the network.

Rail growth was a catalyst for economic growth and development within the country and Transnet was committed to making the economy more competitive, unlocking regional growth and integration, to creating jobs and building skills and to leading the transport and logistics sector in the country’s transformation agenda.

Discussion

Dr Z Luyenge (ANC) indicated that Transnet was one of the institutions which the Committee was really proud of, and commended it on its turnaround Market Demand Strategy (MDS). The MDS was a catalyst for economic growth. The presentation had attested to the growth at Transnet, but the new interventions were a concern because they seemed to be biased towards the urban population. What plans were in place to improve the conditions in rural areas? He suggested that Transnet expand its mandate through social responsibility and by taking care of small ports, such as in Port St John’s and Coffee Bay. Job creation was growing, but more needed to be done in rural areas.

Mr E Marais (DA) said the introduction of the automotive wagons was good news and they would be interesting to see when they arrived. When was the expected date of arrival? He asked whether the handling of the new locomotives would not be problematic with regard to off-loading and on-loading. He said complaints had been leveled against Transnet on the company’s turnaround times when moving stock. What was TFR moving between Cape Town and Saldanah? This area had been declared as an industrial development zone.

Ms P Van Damme (DA) said it was quite refreshing to have before the Committee a state entity which was performing very well. She said that the backlog on rail infrastructure maintenance stood at R 30 billion in 2014 -- by how much had this been reduced? The times during which freight was being transported on rail had also been raised as a concern by the public, because this was causing delays for metro rail users during peak times. Was this the case, and how was it being addressed? At what times was freight being transported?

Ms D Rantho (ANC) agreed with Dr Luyenge that the economic development of rural areas needed to become a priority. The lack of skills development programmes and opportunities among young people had been raised as a serious challenge a number of times. There were no railway lines going past rural communities in most cases. How did Transnet involve the youth in rural communities in its development objectives? What relationships did Transnet have with schools in these rural communities? She gave the example of Klipplaat, where there was a small old railway station surrounded by abandoned buildings -- who did these buildings belong to, and why were they not being used? What relationship did Transnet have with local municipalities in order to make these old buildings useful for local communities? What bilateral relations did Transnet have with big businesses which used heavily loaded trucks on the road instead of using rail? How was Transnet working with the Department of Transport to get these trucks moved from the roads to rail?

The Chairperson asked about TFR’s regional integration. Why was TFR covering only Zimbabwe, Mozambique and Namibia, and not the whole SADC region? The Department of Transport had identified about 3 350 kilometers of branch lines which were not being used. How was Transnet going to fund the revitalisation of these branch lines, because they could be used to revitalise rural communities?

Mr Nair said the TFR had seen the need to build the new automotive wagons within the country, to cater for the profile of the vehicles being manufactured. The specialised wagon -- the road-railer’s first prototype -- would be available before the end of the year. It would have been quicker to import these from international manufacturers, but it was more preferable to build them and create jobs within the country. TFR was negotiating with the company which had been awarded the tender, who would build about 3 000 wagons. One of the challenges affecting turnaround times for loading and offloading was that TFR still had an old locomotive fleet which failed frequently. Although freight had been moved from road to rail, TFR was targeting more of the fast-moving consumer goods (FMGC) industry. The Cape Town to Saldanah line was for transporting coal, and was a very important line for TFR. On the infrastructure backlog, which had been over R40 billion, in the past two to three years this had been reduced to around about R35 billion. This was because the TFR was doing normal maintenance, addressing the backlog and making capital investments. The capital investments in the past had been huge and in some cases the backlog was being addressed by capital investments.

TFR had an agreement with the Passenger Rail Agency of SA (Prasa) that Prasa would run trains in the morning and afternoon peaks from Monday to Friday, and in between these peaks, Transnet would run freight trains. But Transnet also tried not to run freight trains past a Prasa station, keeping the service’s design away from community stations as much as possible. On the question around the building in Klipplaat, he said he would need to go back and investigate whether the building belonged to Prasa or to Transnet. However a lot of the buildings owned by TFR which had been unused were now being used in collaboration with the local municipalities to create informal training centres. However, this was something where TFR acknowledged that there was a need to work more closely with municipalities.

TFR had bilaterals with all its customers. However, in the past two years customers had been downscaling and looking for cheaper ways to transport their goods. Transnet was also working closely with the Department of Transport in this regard. On regional integration, he said Transnet was involved with the SADC Railways Association, which covered all the countries in the SADC. On the branch lines, he said over the years TFR had worked to keep a number of them operational. The questions around rural economic development were fundamental ones, and where Transnet had railway lines which passed through rural areas there were activities for skills development. However, rural economic development needed much more attention.

Ms Raisibe Lepule, Group Executive: Results Management Office, Transnet said the branch lines strategy was one of the immediate opportunities for TFR to develop rural economies. The implementation of the branch lines strategy would go a long way in the economic development of rural communities. There were also many other activities happening through the involvement of the Transnet Foundation. With regard to how Transnet got involved in education and up-skilling of young people, he said the Transnet Foundation had sports development programmes involving rural youth in various training opportunities. Young people were also exposed to maritime studies.

Ms Van Damme asked a follow-up question around the maintenance backlog question. What was meant by the TFR not focusing on maintenance, but rather on capital investment? Was the entity rather spending money on new infrastructure than on maintaining existing infrastructure?

Mr Nair responded that the TFR was not ignoring maintenance, but in some cases the backlog maintenance had been so bad that instead of maintaining a line, it was better to replace it. This was why the line replacement programme had grown from 400 kilometers per year to 1 500 kilometers a year.

The Chairperson asked about Transnet’s collaborations with Prasa. Prasa also had a strategy to move goods from road to rail, so where did the two meet and work together? Prasa also had a separate programme on locomotives, different from Transnet -- how would collaboration be ensured?

Mr Nair said Transnet worked extremely closely with Prasa. Some of Prasa’s people sat in on Transnet’s planning sessions. From a technology point of view, the locomotives Prasa bought for transporting goods were different from those bought by Transnet for transporting people, although there were some technologies which were shared between the two, especially those around safety. There was also a technical committee in place which sat between these two structures -- for example, the signaling system was shared between the two entities. There were also a number of training sessions taking place between the two.

Ms Lepule said there were also engagements between Transnet and Prasa, where Prasa would require properties in stations which would have previously been in the Transnet stable, when Prasa divisions had been part of Transnet. The transfer of these facilities was continually under discussion, because Prasa wanted to revitalise these train stations. Transnet would then benefit as it would not need to carry the holding costs of these properties.

The Chairperson referred to Transnet’s agricultural sector involvement, and indicated that a number of stakeholders were not happy with Transnet transporting their produce.

Mr Lebohang Ntwampe, Chief Director: Transport, Department of Public Enterprises (DPE), said he appreciated the comments and submissions from the Committee, together with the successes achieved by Transnet. The DPE was currently looking at targeting key developments in rural areas through the development of branch lines to address poverty, inequality and unemployment in these areas. Transnet, through its corporate social investment, had done a lot in a number of provinces seeking to uplift skills in both the rural and urban areas.

The Chairperson thanked Transnet for the presentation.

The meeting was adjourned.