What has been done in 12 months to address the Logistics Crisis?

The Energy and Logistics Crises were two bugbears that forced more than one voter to move their vote away from the ANC in May this year. It is clear that a line has been drawn in the sand regarding the oversight of state-owned entities and companies.

While affecting political change seemed like a hard slog (which it was), the real hard work begins now. We need to address two crises marred by years of abject mismanagement and poor decision-making. It’s been a year since the Durban and Cape Town port debacles. What has been done since then to turn them around?

A drag on economic growth

The News24 article points out that, for the past three years, Transnet has been a drag on economic growth due to weak freight performance disruptions and congested ports, mainly due to under-investment and failure of infrastructure. It has also been beset by financial problems and cannot service its debt.

A new board was appointed a year ago, followed by new management both at group and some divisional levels.

The article adds that, in a statement, group CEO Michelle Phillips – appointed in March – said that the company had made considerable progress in implementing the Freight Logistics Roadmap (a joint presidency and business plan) and the Guarantee Framework Conditions, which Treasury put in place.

Institutional measures

The News24 article points out that the institutional re-engineering underway is the most extensive reform within the transport sector in 30 years since Transnet was corporatised in the 1990s.

In a statement, replete with timeframe commitments, Phillips said:

• The separation of Transnet Freight Rail (TFR) into a rail operating company and an infrastructure manager was on track, along with the establishment of an interim rail regulator. The organisational structures of the disaggregated TFR will be final by the end of the first quarter of 2025;
• The draft network statement issued by TFR in March 2024 would be finalised by the end of September, opening the way for third-party train operator access to the rail network;
• The corporatisation of the National Ports Authority as a subsidiary had begun. This will enable the NPA to attract private investment and regulate private operators. Work was under way to complete the memorandum of incorporation and registration of the new entity;
• In line with the guarantee conditions set by the Treasury, the board has approved a plan for the disposal of non-core assets. The full list will be finalised in this financial year.

“These initiatives demonstrate Transnet’s commitment to structural reforms in response to policy and regulation changes. In some cases, these changes entail the entry of third parties into the rail and port networks, which is a necessary step to stimulate competition and address long-standing challenges such as underinvestment,” Phillips said.

The article adds that Transnet is also working on improving operations in rail freight and ports and on bringing in private partners. To this end:

• Independent technical assessments of the iron ore and the coal rail corridors have been completed, and TFR is working to prioritise the improvement of rail volumes.
• A project to expand manganese exports through the port of Ngqura is underway to attract a private sector partner to assist in funding the design and construction of the new terminal. A preferred bidder will be announced before the end of 2025.
• A project to position the port of Richards Bay as a liquefied natural gas (LNG) import point was underway. The Vopak Terminal Durban & Transnet Pipelines (TPL) Consortium Venture has been appointed the preferred bidder for the LNG terminal to design, develop, construct, finance, and operate the terminal for 25 years. The terminal is a partnership between the private and public sectors, with the private sector as the lead investor and Transnet holding a minority share in this new business.
• Grindrod South Africa was the preferred bidder to develop and operate a container handling facility at the port of Richards Bay in June 2024. This will increase the port’s container handling capacity from 50,000 twenty-foot equivalent units (TEUs) to 200,000 TEUs per annum.

Search setback

The article points out that while the achievements above have occurred quickly, there has been a setback in the search for a partner to establish a rolling stock company in TFR. Transnet had cancelled the tender due to “certain noncompliance’s with the request for proposals process,” she said.

“Transnet will endeavour to reissue the RFP to the market by December 2024,” she added.

These initiatives demonstrated “Transnet’s commitment to proactively respond to the changing operational and policy environment”.

“A viable logistics industry is the lifeblood of the South African economy. When we invest in infrastructure, we empower our customers to flourish in an increasingly competitive and dynamic business environment,” concluded Phillips.

Future interventions

What can be done to prevent a logistics crisis of this magnitude in the future? One of the most effective interventions is the need to empower our local communities by localising supply chain capabilities and possibly re-evaluating South Africa’s manufacturing capabilities. By focusing on local solutions, we can regain control over our logistics.

Second, we need to move away from 100% Government ownership and oversight of state-owned companies and entities if they are going to be key economic drivers. The private sector must participate. This is non-negotiable. We are seeing the green shoots of this with a Transnet board that features heavy representation from mining companies who the Logistics Crisis impacts the most.

We live in interesting times.