Transnet’s efficiency is improving and may surprise this year

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This interview was originally aired on RSG Geldsake (in English). The Afrikaans introduction has been translated in this transcript.

RYK VAN NIEKERK: Transnet’s operational woes have caused significant harm to the South African economy, with some estimates suggesting that the problems at our port and rail operations have cut 5% off the country’s GDP in 2023. This amounts to a staggering R400 billion. 

However, it seems as if Transnet has improved efficiencies since Michelle Phillips was appointed as acting CEO in November last year. Congestion at several ports has been reduced and it also seems as if the rail operations are improving. 

In the December quarter coal exports along the northern corridor to the Richards Bay Coal Terminal increased by more than 10%, and this line is an important one because it is responsible for 41% of Transnet’s freight rail volumes. 

Read: Transnet personnel changes paying off

Andrew Shaw is on the line. He’s the chief strategy and planning officer at Transnet. He has been in this role for nearly four years. Before moving to Transnet, he was a partner at PwC and the leader of its Capital Projects and Infrastructure, Transport and Logistics division. Andrew, thank you so much for your time. Just give us your assessment of the current efficiency levels at Transnet’s primary operations.

ANDREW SHAW: I think from our standpoint we probably still seem to have a long way to go; but what we do feel is that we’ve turned the corner in terms of a very, very substantial focus on recovery in the last five to six months. That is, given the conditions that we have on the network, which are still challenging, and given the challenges we still have around equipment, rolling stock and crane equipment.

I think it’s just a drive to improve the basics of how we operate the business, how we drive out volumes, how we focus on performance [which] has had this impact, where we are seen to at least be making a more positive change.

Still a long way to go. 

RYK VAN NIEKERK: During previous discussions about Transnet, it was suggested that most of the problems or a significant part thereof was infrastructure. There are a number of trains which are not operational due to spare parts not being available. Also there are the infrastructure challenges at the ports. But if you want to have a short-term improvement in efficiency levels, it comes down to people being more efficient. Was that a core focus – to try and get the Transnet workforce to be more efficient?

ANDREW SHAW: It has been a core focus, as has been working through the NLCC [National Logistics Crisis Committee] structures and with the private sector. Where we’ve had challenges with procurement, we’ve really drawn in some of our big customer groupings. The Richards Bay Coal Terminal [RBCT] is a really good example, and they’ve helped us to fast-track the procurement of certain items that would normally have taken a little bit longer. So that has helped. 

And then, as you said, a focus on just the process and the people side of the business.

RYK VAN NIEKERK: So let’s talk about the Northern Corridor line because it’s a critical one. How did you manage to increase by 10% the volumes transported, because that seems quite significant? What were the reasons for that improvement?

ANDREW SHAW: We have again, through strong collaboration with the NLCC, established certain operational excellence centres. These are on-the-ground centres. There’s one on the North Core, which is at Empangeni, which focuses on actually making day-to-day decisions on the corridor, collecting the data, and being able to make decisions much faster. So that’s had an impact. 

The agreement that we struck with RBCT in terms of assisting us to deliver spare parts and to fast-track train turnaround time and assist us in operations and performance has also had a key impact. 

We’ve also, on the security side, really focused hard on trying to reduce the number of security incidents. Now I don’t have the statistics here for that corridor, but I know that we’ve managed to reduce the number of incidents quite significantly, and each one of those incidents would’ve caused a train delay or train cancellation because it is often an overhead line that is stolen. So just taking some of those out of the system has allowed us to get this performance up, and also to give kudos to our management and the managing executives in this and other corridors for the hard work that they’ve been focused on. 

RYK VAN NIEKERK: You’ve referred to the NLCC a few times. That’s the National Logistics Crisis Committee. It was established by the president and it works closely with Transnet to try and resolve problems. What exactly does it do and what has the impact been?

ANDREW SHAW: The NLCC is a drive from the presidency. It also sort of runs in parallel with the establishment of the Freight Logistics Roadmap, which is something that has been discussed at the Mining Indaba in some detail. But the NLCC has a series of work streams, the finance work stream, the policy work stream. The critical one in this case is the operations work stream and through the operations work stream, we’ve worked very closely with B4SA [Business for SA], as well as the other customers. 

Read:
A collaborative journey begins between government and business
SA aims to fire up economic growth with port, rail revival

So where we can get customer alignment and they can actually support improving that supply chain – because the supply chain includes the customers in all instances, their loading points as well as their support for procurement and operations reform – we’ve been able to get this performance change across the system that has been really beneficial for us in the last few months.

RYK VAN NIEKERK: How sustainable are these positive improvements in efficiency levels at the ports, as well as on the rail side, because you can have one good quarter and the next quarter you can maybe have a severely negative impact from crime and vandalism? Is this sustainable, and do you foresee for 2024 there will be a marked improvement compared to last year?

ANDREW SHAW: Let’s start at the back end. We’ve committed to government that there will be a marked improvement. So we’ve provided government with the extension of our recovery plan into this next financial year, and that has some volume and performance targets that are higher than the ones that we’ve been able to deliver in this last six months. So yes, we do believe that is sustainable.

But one of the challenges of this business, Ryk, is that we are sometimes blindsided by events. The floods in KZN a year or so back, large-scale derailments – which we are subject to because of the condition of our infrastructure, which means that sometimes it’s that that causes the derailments – can cause significant challenges to the business. So if we put those aside and say yes, there are these big events that could change the trajectory, we continue to focus on this operational reform and driving this out across the business. 

Read:
Transnet trains collide, shutting SA’s coal export line
Counting the true cost of the coal train collision
Driving a long-distance freight train ‘blind’

But in alignment with that, we focus on incrementally improving the condition of assets, particularly moving assets, cranes and rolling stock, return to service of the locomotives that have been longstanding, making sure that we drive those engagements out, [and] working with some of the original equipment manufacturers to help us maintain and keep these assets in better overall condition, although they are old. 

And so we’re quietly positive but it’s a tough business. 

RYK VAN NIEKERK: Yes, a tough business indeed. 

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Transnet has appointed several private operators to manage piers at some of the major ports. There is also a lot of commitment from government’s side and plans to also allow private operators on the railway lines, especially on the freight side. How long do you think it’ll take before we will see private operators on the rail side, and do you think that will also make an immediate difference in efficiency levels?

ANDREW SHAW: On the rail side we are committed to the Freight Logistics Roadmap that’s been set in place. It was approved by cabinet in December 2023, not long ago. So we’re driving very hard to align with all the implementation metrics that come from that. Some of those are part of our guarantee conditions, others are longer term. Some of the key focus of that roadmap is the immediate drive to try and draw in the private sector onto the network. 

Now we know that there are a number of operators that have a sharper interest, but they also have to get an RSR [Railway Safety Operator] licence to enable them to operate safely on the network.

And we have to go through a process of separating the infrastructure from the operations, and then creating a network statement, and then also getting clarity on pricing, which is through the regulator.

So there’s an interim regulator called the IRERC [Interim Rail Economic Regulator Capacity] at the Department of Transport. Once those things are closed, then we’re very clear that we would welcome private-sector operators on the network.

I think what people seldom realise is that if we draw some of these operators in, and they pay a track-access charge to our infrastructure manager, we actually get the revenue stream from that.

So Transnet actually will benefit from having additional operators on the system moving more volume.

RYK VAN NIEKERK: But are we talking months, are we talking years, are we talking decades?

ANDREW SHAW: I think the roadmap puts us under a lot of pressure to deliver as fast as we can. We have to in the next few months go through a public consultation process, and we’ve initiated the agendas for those. That’s a requirement that we have to meet. And then once we have clarity on that and the pricing, the process will start from April. But probably by September we would be able to accommodate additional operators on the system.

RYK VAN NIEKERK: September this year? That’s what, six months away? 

ANDREW SHAW: Yes.

RYK VAN NIEKERK: I think the buy-in is so critical from Transnet’s side because I think the previous management was not overly excited about the idea of having competitors on its infrastructure. But how significant can the difference be that the private operators make, especially in the short term?

ANDREW SHAW: Look, I think over time they can make a significant difference. What we can do is we can count the number of potential operators and the amount of rolling stock that they have relative to the size of our fleet. It’s still very small. So it’ll take a little bit of time for this market to develop. There are a couple of players that are very, very keen to get onto the system, and they have available rolling stock. 

We have what we kind of call a bridging plan because we need to fund that infrastructure, and so we need the buildup of private operators to help us to contribute to the costs of actually investing back into that infrastructure.

And we see that as a probably a five- to seven-year journey to get a significant portion of the tonnage actually moved by a new private-sector operator. 

So yes, the enthusiasm is there, particularly in sectors such as manufacturing, containers, and chemicals. These are the areas that we know that people would like to come [into] and move product on the network.

RYK VAN NIEKERK: Just lastly, crime and vandalism – that is a major problem and there are many claims that some of the road operators are sabotaging Transnet to keep contracts for road transport. That’s a challenging problem to solve. What are your plans there, and do you think there could be some prosecutions on the horizon – which obviously would flow through to increased efficiencies at Transnet?

ANDREW SHAW: We have an NLCC structure, a particular work stream that focuses on security, and within that work stream we have justice and policing and various contributors to that. So, as we did with the pipelines, where we were able to actually reduce the number of incidents significantly, we would hope to have the same impact on the rail system. Now that has started, so that work stream has helped us considerably. 

A key thing, once you get an arrest, is to follow through to prosecution – and in the past that’s been relatively low, in fact very low, and we would like to increase that. We’d also like it to focus on those who are behind some of these crimes, which to a large extent is organised crime outside the realm of the people that actually commit the crime.

And so there is a commitment in that work stream to address those particular challenges in the systems.

We also have an outcome space security contract that is separate for each of the main corridors, and the focus of those contracts is to empower and incentivise the security contractors to actually reduce the amount of incidents on the system. So that gives us a new incentive and a new focus on how we manage the security contractors that we have. 

We were some months ago also given the opportunity to train up our own Transnet security employed by ourselves to become peace officers, which is really a similar status to a police officer in that they can undertake arrests. That also gives us more powers within the system to be more focused on the prosecution angle. 

RYK VAN NIEKERK: And is it working? 

ANDREW SHAW: Yes, because we’ve seen the number of incidents reduce on almost all of the networks. It’s still too high. As I said, I don’t have the stats that I can quote back to you on particular corridors like the North Corridor, but we have been successful over this recovery period, the five months that we’ve been at it.

RYK VAN NIEKERK: Andrew, thanks so much for your time. That was Andrew Shaw, the chief strategy and planning officer at Transnet.

 
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