Founder: Turnaround Talk
Muhammad Ali was serving a suspension for being a draft dodger (during the call up to the Vietnam War). He was sitting in his living room planning the possible logistics behind a return bout with the then World Heavyweight Champion, “Smoking” Joe Frazier. Little did Ali know that he was about to witness Frazier’s humiliation at the hands of George Foreman. With Ali’s suspension served, the boxer not only had to reinvent himself, he had to plan how he would beat Foreman in what would be the fight of his life. What transpired was the Rumble in the Jungle.
Transnet is facing a similar situation. Devastated by years of mismanagement the company decided to sever its ties with Government and embark on the biggest privatisation of a company that South Africa has seen since 1994. The reinvention part complete, the company is now entering into a period of tense negotiations with manganese miners while trying to keep other parties in the country happy.
Far reaching impact
The News24 article points out that Transnet’s railing and broader logistics troubles have hit synthetic fuel and chemicals group Sasol on three fronts, hitting its business in South Africa and beyond.
Sasol relies on Transnet rail to move liquid and bulk products from its Sasolburg operations as well as liquid from its Secunda plant and high-quality coal from its mines to the export terminal in Richards Bay.
“We were hugely impacted by all three of those,” Sasol CEO Fleetwood Grobler told News24, following the release of the company’s interim results.
The deteriorating railing performance of Transnet is cause for major concern for business in South Africa. Bulk commodity producers have been particularly vocal over the urgent need to arrest the operational decline which is costing industry, the fiscus and indeed Transnet itself, billions in losses.
Photo By: South32
Challenges from Secunda to Richards Bay
The News24 article points out that Sasol’s CEO said the group had experienced challenges in moving high-value chemical products from Secunda to Richards Bay.
“We’ve set up a supply chain that is very, very intricate – you can’t have any contamination. If the railroad is not working, you can’t the next day put it in a truck … So we have very high-quality control and quality assurance of the logistics from Secunda to Richards Bay,” said Grobler. “Because we couldn’t move at the rate required, we actually had to cut back operations. In some cases, we slopped the product, we had to work it away. And that has been hurting our business.”
The group’s Sasolburg operations have also been impacted regarding the movement of bulk density products – like the polypropylene and polyethylene – and liquid bulks to the coast where it’s exported.
“Our logistic costs to move product to the coast has increased by 40% over the last 12 months. And the reason being is the ratio of rail to road is now skewed totally,” said Grobler.
“So we now have to move most of our products via road to the coast to be able to export it. And some of that we can’t even put on road because of the quality problems that I’ve mentioned, to control that for contamination.”
Photo By: Transnet
Margin impact of R400 million
The article adds that the inability to move these products to customers has had a margin impact of R400 million in the past six months, the CEO said. “And we are not even talking about reputational damage we incur as a supplier from South Africa to the US and Europe … because we can’t supply them product when they need it.”
The coal export line – Transnet’s most lucrative corridor – has been especially impacted by operational challenges impeding volumes transported to the Richards Bay Coal Terminal (RBCT).
Sasol consumes the bulk of the coal it mines as part of its coal-to-liquids business, although certain higher grades of steam coal are exported through the export entitlement it holds at RBCT.
“We used to sell 2 to 3 million tons in the open market of that high quality coal. That is still part and parcel of our operations … but we’ve been impeded by the [rate of] movement, like any other coal producer in Mpumalanga, to be able to export it,” said Grobler.
The article adds that Sasol reported 1.2 million tons of external coal sales for the six months ended in December 2022.
The fight of its life
By severing ties with Government, Transnet will not be so lucky in its friends in future.
What does this mean? It means that when the company falls on hard times, it cannot turn to Government seeing a bailout. Transnet now needs to focus on building key relationships with industries. Further, it needs to put its best foot forward and live up t its promises when it comes to providing a crucial serve that the country desperately needs.
If Government was holding Transnet back from achieving this ideal, the company will now be engaged in the fight of its life to win over support from key industries.
