Transnet personnel changes paying off

Could it be that Transnet has at last turned the corner? It would be foolhardy to announce the arrival of spring at one of SA’s most fractured state-owned entities, but the signs are at least encouraging.

Coal exports along the Northern Corridor to the Richards Bay Coal Terminal (RBCT) were up more than 10% in the December 2023 quarter to an average of 1.1 million tons a week. The Northern Corridor is the main rail route connecting the Mpumalanga coal fields to the port of Richards Bay and is responsible for about 41% of total Transnet Freight Rail volumes.

Including shipments from other routes between the September and December quarters, volumes shipped to RBCT were up nearly 4% to 48.74 million tons.

Read:
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In a statement issued last week, Transnet says it expects to rail 49 million tons of export coal to RBCT against a declared capacity of 60 million tons for the financial year ending March 2024. This will require a sustained improvement on the 35.8 million tons delivered over the first three quarters of the year.

RBCT has a design capacity of 90 million tons a year, which is currently heavily underutilised due to Transnet’s inability to ship sufficient volumes to the port.

The recent improvements in rail performance will go some way to clawing back some of the R150 billion in lost sales that Transnet inefficiencies are reckoned to have cost the mining industry in 2022. These inefficiencies cost the economy close to 5% of GDP in 2023, says a study by the GAIN Group, and meant the global commodities boom of recent years sailed past us.

Read: Transnet dagger pointed at the heart of SA’s economy

There’s also encouraging news from Transnet Ports, with reports that unprecedented backlogs of vessels at anchorage outside the Durban Container Port had reduced to single digits from around 20 in December. There are also signs of improvement at the Cape Town Container Terminal, which has taken on extra personnel to arrest the 14% drop in exports of deciduous fruits compared to last season.

Read: Transnet ups Cape Town port capacity to rescue fruit export season

What changed?

The turnaround in performance at the state-owned logistics provider is almost entirely due to personnel changes, says Jan Havenga, professor of logistics at Stellenbosch University.

“Transnet was a victim of state capture, and the solution proposed by those responsible [during the tenure of then CEO Brian Molefe and CFO Anoj Singh] was to buy more locomotives since this was an obvious way to enrich their friends. Locomotives and wagons are certainly needed, but the problem is much bigger than this.

“Transnet has ancient signalling systems that were installed in the 70s on the major coal line running to Richards Bay. We have infrastructure that is decaying from years of little or no maintenance, and we have a culture which chased away trained personnel.”

Read: Driving a long-distance freight train ‘blind’

Government responded to pressure from the mining and business sector – notably the Minerals Council SA and the Durban Chamber of Chamber of Commerce and Industry – which called for the axing of former CEO Portia Derby and Sizakele Mzimela, former CEO of Transnet Freight Rail, as well as other executives seen to be “sabotaging” business.

What had been simmering in private for years suddenly burst into the open, particularly when, at a Bloomberg seminar last year, Derby referred to the potential loss of jobs in the trucking sector should Transnet improve its rail service. This was read by many as an admission of executive apathy, and it was clear she was in the wrong business.  

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Government was forced to act. Earlier in the year, President Cyril Ramaphosa established the National Logistics Crisis Committee (NLCC) together with Business for South Africa to address key bottlenecks and inefficiencies at Transnet. This was a great idea on paper, but business quickly discovered that Derby and her team resented having outsiders poking around in their affairs and obstructing plans to turn the enterprise around.

Read:
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Then Public Enterprises Minister Pravin Gordhan took a meat cleaver to the board.

In came Minerals Council vice-president Andile Sangqu as chair of Transnet in July 2023, giving a voice to the company’s largest customer, the mining sector – accounting for roughly 80% of Transnet Freight Rail’s business and 50% of overall revenue. The board was loaded with engineers, industry representatives and labour, people who knew how to run an enterprise of this complexity. 

Out went Derby and Mzimela, replaced by Michelle Phillips as acting group CEO and Russell Baatjies as acting CEO for freight rail.

Several former Transnet executives who left the organisation over the years have been lured back, including former programme director Marc Descoins.

Havenga says several other former top executives have been roped into the Transnet recovery plan, many of them with salaries paid by Business South Africa.

Listen/read:
Transnet’s radical board shake-up aimed at fixing rail and ports [Jul 2023]
Transnet boss Portia Derby resigns [Sept 2023]
Transnet Freight Rail CEO Siza Mzimela resigns [Oct 2023]
Glimmer of hope as new Transnet executives appointed [Oct 2023]

Encouraging signs of progress

Writing in Moneyweb last week, Juanita Maree, CEO of the SA Association of Freight Forwarders – which sounded the alarm on Transnet a year ago – noted the encouraging signs of progress since business got involved in the NLCC. The turnaround at Durban Container Terminal Pier 2, with a recovery plan crafted and implemented by the crisis committee, will remove the vessel backlog by the end of this month.

“Cabinet’s approval and activation of the Freight Logistics Roadmap also opens the way for reviving a properly resourced, inter-modal, world-class logistics network for South Africa and the region,” says Maree.

Transnet seems to be embracing the collaboration with business:

“The partnership with industry is resulting in a decline in the number of cable theft incidents on the corridor, although some sporadic incidents still occur,” it says in a statement issued last week.

“Transnet continues to intensify deployment of security measures to reduce cable theft and infrastructure vandalism.”

The new management team led by Phillips and Baatjies has changed the culture and mood at Transnet, adds Havenga.

“The improvements we have seen in the last few months have all been achieved without massive investment in locomotives and wagons. These improvements are the result of operating smarter. Transnet has a rail network of about 21 000km, but virtually all of its rail revenue comes from just 1 500km of that network. That’s where we need to focus the attention.

“If we can improve turnaround times on the Sishen-Saldanha Bay railway line so we get trains turned around in 80 hours instead of 100 hours, that means we can run an extra train a day using the same rolling stock we have. And this can be done.”

The 861km Sishen-Saldanha line between the Northern Cape and the port of Saldanha Bay in the Western Cape handles most of the country’s iron ore exports, and its efficiency has had a direct impact on the revenue and profits of Kumba Iron Ore and other iron ore exporters.

Trains as long as 10km are not easy to slow down, and switches allowing trains in the other direction to pass are old and need upgrades. Miners using the line and Transnet have managed to improve efficiencies on the line through better scheduling and maintenance. 

Perhaps Transnet has finally turned the corner and demonstrated what can be done when cadres are replaced by industry specialists. 

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