TFR finally sets out its growth stall

[John Ashworth]

After decades of contraction, SA’s rail company finally sets out its growth stall
By: Terence Creamer
Engineering News
Published: 18 Jul 08 - 0:00

The leafy suburb of Parktown, just north of the Johannesburg central business district, is the improbable location for what could arguably be described as South Africa’s quiet rail revolution.

Number 21 Wellington road, Transnet Freight Rail’s (TFR’s) new head office, is being transformed to double up as a high-tech national operations centre, or Noc. Situated on the lower level of the building, Noc itself is dominated by an enormous video screen, which looms large over banks of brand-new computers, giving it all the hallmarks of something developed by the National Aeronautics and Space Administration.

Designed to offer full visibility of South Africa’s railways system, including its linkages into the regional networks of Southern Africa, Noc arguably sets the tone for what CEO Siyabonga Gama envisages as a seamless, modern and scheduled railways service – a theme that is carried over into the office space itself, which is notably open plan, with strikingly contemporary steel and glass finishes.

Noc could also be seen as something of a metaphor for the changes that are starting to gain traction at the once troubled State enter- prise, whose importance to South Africa’s logistical landscape has diminished significantly over the last two decades on the back of policy uncertainty, a lack of corporate vision and massive underinvestment.

But more importantly, these superficialities also appear to be underpinned by genuine philosophical and operational changes, which TFR’s parent company, Transnet, is now constantly drumming into the heads of its some 50 000 employees.

In fact, it is doing so through various traditional and nontraditional communication means, from PowerPoint presentations during site visits to key operational centres such as Koedoespoort, through to the creation of an extended executive committee to help deepen the top-level leadership pool.

One of the more innovative schemes is a comic book, dubbed Vulindlela (the same isiZulu name, meaning ‘open the way’, given to the group’s re-engineering programme), where characters such as Vusi, Lerato, Jojo and Phumla stress values such as teamwork, honesty and commitment.

Another has been the far-reaching process to develop a so-called ‘Culture Charter’. The final charter will be drafted following the tallying of votes, itself based on a ballot drafted, using 17 000 written inputs from staff and meetings with 7 000 individuals where their aspirations and views about the company were canvassed. In the end, over 43 000 ballots were cast.

Reliability and Predictability

In an interview with Engineering News, Gama insists that material progress is being made towards integrated planning and operations, which, he acknowledges, will make or break its growth vision, especially plans for regaining general-freight market share.

Teams involving individuals from the railways, the harbours and even the group’s engineering unit now sit around one table to plan and replan service design.

This coordination has already borne some fruit, Gama asserts, with the general freight business (GFB) recording its first, albeit modest, increase in volumes to 84,5-million tons in 2007 for over a decade. This performance was achieved despite the locomotive fleet having shrunk from about 3 200 three years ago to about 2 450, and in spite of the fact that the new locomotives on order will only start making their presence felt later in this calendar year.

The virtue of scarce resources is that integrated planning has been forced onto centre stage. The Transnet teams are having to continually work on ways to match customer demand to its depleted wagon and locomotive supply, and to do so while improving overall reliability and predict-ability – the two variables, rather than price, which Gama believes will determine its future success.

“We are already between 40% and 60% cheaper than road, so pricing is not the main impediment,” Gama avers.

He reveals that a lot of work has also gone into understanding the freight market, its flows and possible ways in which rail could regain a stronger foothold.

By any measure, the figures are quite dismal, if not downright depressing.

A study conducted a few years ago shows that, since 1993, road has grown by about 50%, while rail’s share, excluding the heavy-haul commodity lines, has declined by 20%. Rail, thus, has only about 11% of what was a R140-billion transport economy in 2005, when the study was conducted – the transport sector has since grown to about R168-billion.

Network Model

Under its emerging integrated vision, Transnet hopes to leverage the synergies between its ports and rail to improve both the competitiveness and attractiveness of its service.

CEO Maria Ramos says the strategy will be built on a ‘network business model’, which will seek to offer an end-to-end solution, in some instances with partners, that will enable it to capture both freight growth and market share.

Therefore, notwithstanding the current economic and freight-economy slowdown, Transnet has set ambitious expansion targets, with the immediate emphasis, given the slowing circumstance, on increasing market share.

In freight rail, the group hopes to raise its volumes from 181-milliton tons to over 238-million tons by 2012/13, implying a yearly growth of 5,6%, or 31,5% over the three-year period.

To achieve this, the GFB will have to grow at 6,5% a year, while iron-ore volumes would need to rise by 7,3% and coal by 3,6% yearly.

Yearly growth of 8,6% is being budgeted for for Transnet’s port-terminals business, implying a volume growth from 103-million tons to 156-million tons by 2012/13, while annual growth rates of 6% and 7,6% are being budgeted for for Transnet National Ports Authority and Transnet Pipelines respectively.

The State-owned enterprise plans to be especially aggressive in seeking to displace surface cargo from road hauliers, which currently dominate the general freight segment of the market.

This is likely to raise the hackles of road-freight companies already feeling the double pinch of slowing demand and rising fuel input costs.

They may feel particularly aggrieved given that Ramos has again stressed that there is “no place in our strategy” for vertical separation (the process of separating the ownership and control of the infra-structure from operations to encourage competition), implying that the railways business will remain a monopoly for some time to come.

That said, there is also strong social pressure for rail to recapture key commodity cargoes that should never have been allowed to move on to road, but enjoyed such ascendancy on the basis of the steady decline of the railways utility.

Fleet Modernisation

For its part, TFR has completed a mapping exercise of all freight flows across South Africa, which has highlighted the four ports, five corridors and eight commodities around which its growth strategy should be built.

This is also reflected in the unit’s R38-billion, five-year capital programme, which is itself the largest portion of its parent’s R80-billion planned investment programme over the same horizon.

The roll-out will see R25-billion spent on the modernisation of TFR’s rolling stock, including the acquisition of 405 electric and diesel locomotives for the GFB, as well as the coal line from Mpumalanga to Richards Bay and the Sishen–Saldanha iron-ore line.

Infrastructure will absorb R10-billion, while other plant and equipment, including signalling equipment, will absorb more than R1-billion.

Gama says that the key corridors to benefit from the capital programme will be Gauteng–Richards Bay, Gauteng–Durban, Sishen–Saldanha, Gauteng–Coega, Sishen–Coega and Gauteng–Maputo.

He also stresses that R22-billion of the R38-billion will be directed towards expansionary projects, while the balance is of a sustaining nature. Overall, 58%, or R47-billion, of Transnet’s R80-billion capital programme will be directed towards growth of the rail, ports and pipeline networks.

The group will have to raise R37-billion in the debt capital markets over the next three years to help fund the programme, with 51%, or R21-billion, of that to be raised on the domestic markets, through a combination of bonds and loans.

Time Compression

But Gama insists that the fleet modernisation alone will not be sufficient to improve TFR’s prospects. Success hinges as much on planning and management, with the modernised fleet providing the fillip.

“There has also been a big push to reduce the cycle times,” Gama asserts, noting that the average transit time for freight moving between Durban and Gauteng, the country’s chief freight route, has already been reduced from 54 hours to 26 hours.

“Shunting inside the ports and at the yards used to take 38 hours, but we have come up with pro-cesses to slash eight hours on each side, port and inland.

“What we are targeting now is to reduce the entire cycle (shunting and transit) to about 26 hours overall,” Gama elaborates, revealing that innovations have been introduced to prepare the trains far faster, while track and trace between port and rail has improved overall visibility.

There is also an effort under way to reduce the double handling between Durban and Pinetown, which could see trains being able to ‘transit’ from the Port of Durban to City Deep in 16 hours, down from over 23 hours.

On some corridors, new and streamlined crew management systems have already been introduced to improve delivery. For instance, on the so-called Natal corridor, between Durban and Johannesburg, there are now only two sets of crews involved in a trip as opposed to the five that used to be employed.

The train now moves from Durban to Ladysmith and then on to Johannesburg, with drivers put up at respectable hotels and lodges to ensure they feel refreshed.

“The driver’s trip is now only completed at the destination, though, which means there is greater predeparture vigilance as everyone wants to complete his or her trip.

“So it is no longer based on time, but on kilometres,” Gama explains, revealing that the model has added something like 20% extra capacity on the Krugersdorp–Mafikeng route, where the driver scheme was piloted. It will now be deployed across all TFR’s 14 corridors.

Still Some Way To Go

But he acknowledges that there is still some way to go before the system is working optimally.

“We still have some work to do, but all these little projects, taken together, are starting to really assist in time compression.

“But we are continually in search of minutes and hours within the chain and we realise we are some way off from truly optimising the supply chain,” Gama elaborates.

He also acknowledges that some corridors are more advanced than others and that a number of customers and customer groups are still far from satisfied.

In the interview, Gama shows a hint of irritation when asked about the export coal line and its underperformance. Railed volumes fell 5,2% to 63,5-million tons in 2007/8 on “shortages of supply and disrupted service levels from derailments”.

Some in the coal sector are perplexed by Transnet’s continual reference to the line’s expansion to 78-million tons a year, when the Richards Bay Coal Terminal is in the process of being expanded to cater for up to 92-million tons yearly.

Transnet CFO Chris Wells has reiterated that the current R80-billion, five-year capital expenditure plan only caters for expansion to 78-million tons, while Gama stresses that the discussions about further expansions to either 81-million tons or 92-million tons still have to be advanced.

Given the enormity of capital that will be required (the expansion beyond 78-million tons would involve not only rolling stock, but also the creation of new infrastructure, including tunnels and bridges), Transnet wants to ascertain the true availability of coal, and is, thus, seeking firm ‘take-or-pay’ contracts before making a move.

“We are looking at the next logical break point, which is 81-million tons, and we are also looking at feasibilities beyond that, but no commitments have been made,” Wells explains, adding that it could in the foreseeable future approve funds for those further expansions.

Indeed, during a recent interview, both Ramos and Wells stressed that the R80-billion was a “rolling” plan, adding that there were a number of other projects in the pipeline that could be drawn into the period up to 2012/13.

For his part, Gama indicates a preference for a situation where the focus is on full use of current capacity instead of the haggling over the expansion numbers.

“We still have six-million tons of spare capacity even before the expansion to 78-million tons,” Gama laments.