In a 2011 reference work on restructuring railways titled ‘Railway Reform: Toolkit for Improving Rail Sector Performance’ from the World Bank, railway reform is defined as “any significant change in government policy, investment strategy, or management structure that seeks to improve railway performance”. The report fundamentally operationalizes the need, methods and considerations related to reforming railways from all corners of the globe. The Green Paper on National Rail Transport Policy’s (GPRP) launch ripples through as critical change in policy and investment that needs to be managed by public sector, private sector and the citizenry. At green paper stage, the subsequent public engagements articulate the direction towards which South African rail services is headed.

On Tuesday this week Director of Rail Policy and Strategy Development, Ms Hlengiwe Sayd visited Mahikeng to present the GPRP as part of the provincial consultation process. The aim of this was to expand the discussion around the green paper, and receive inputs directly from various transport sector representatives and relevant stakeholders.

From the onset, the GPRP acknowledges the inefficiencies of the narrow gauge compared to the standard gauge — especially in terms of economies of scale. From a freight point of view, it argues that the operational and physical capacity of a narrow gauge is not comparable to that of the standard gauge. This s further accentuated by the fact that standard gauge systems reach higher speeds (380km/h) compared to narrow gauge (130km/h). For both passenger and freight services — especially at a regional level — the competitive position of rail relative to road is subject to the completeness of the road based service, but more acutely the speed. In this regard the GPRP contends that “the introduction of an essential wider gauge high performance core network, for freight trains as well as for regional and long-distance passenger trains, should set railways on a trajectory to renaissance, thereby to recapture their proper share of the national transport task.”. This can be done through the reform of under utilised non-core lines. Does improving rail transport efficiencies translate into reduced macroeconomic costs of logistics and transport? And how does the GRTP relate to existing passenger and freight rail efforts?

In the 10th Annual State of Logistics Survey (SOL), rail only carried 12% of freight tons, whilst road services bore the rest (88%). This reveals a decline in the rail market share from the 1st SOL wherein road and rail carried 83% and 17% of the land freight market, respectively. Rail, however has dominated in terms of distance, travelling more no less than 75% of the land freight kilometers travelled between 2003 and 2013. Of the total available revenue generated per ton-km rail accesses only 30% of the total ton-km in South Africa. In the macroeconomy, the road based transport service dominance in the land freight sector intimates a high sensitivity to costs that depend on distance, such as fuel. Other economic volatility for low sunk cost markets, such as road based services, such as the consumer price index (CPI), interest rates (since most trucks are financed), and so on are exposing freight transport costs to significant risks. Logistics costs as a percentage of GDP has declined from 13.1% to 12.5% between 2006 and 2013. Transport costs have accounted for 57.3% (R133bn) to 61.6% (R261bn) of the total logistics costs between the same periods. A startling fact is that 2006 transport costs have doubled in nominal terms, perhaps revealing the underlying changes in the currency value, inflation and fuel costs. The 10th SOL concludes that “although the absolute logistics costs and the logistics costs as a percentage of transportable GDP are rising, it is not a question of logistics efficiency, but rather of the increase in the underlying cost drivers. To a great extent these cost drivers cannot be controlled by industry and efficiency gains are the only respite companies may have.” In response to the logistics costs changes the report concludes that “innovative and bold thinking with potentially far reaching consequences is now required”. This conclusive position is based on a freight market that is dominated by road based services, which are significantly more volatile to economic changes than rail services. Furthermore, although the benefits of road based services are evident, their efficiencies over distance do not appear to compensate for all commodities — such as dry-bulk agriculture. Perhaps one of the directions of the GPRP is that low and medium value high and low volume goods can be transported by rail at a lower cost and with a delivery time guarantee wherein services are integrated with road to complete the trip.

The GPRP is an investment-oriented effort that emerges punctually during an upward swing of the rail investment cycle. Freight investments are largely driven by Transnet’s Market Demand Strategy (MDS) which is a supply side intervention that directed R201bn to Transnet Freight Rail, and devoted almost half of their investment to advancing the general freight business (R151bn). Most crucially, they aim is to improve supply-side efficiencies in order to induce the demand for rail services over road based freight services. Passenger rail service investments are currently propelled by Passenger Rail Agency South Africa (PRASA), which has injected R136bn (reported in 2012) in the upgrading of trains and passenger rail related infrastructure development — 7000 new trains are expected to operate by 2032[1]. The green paper was only recently approved, but much of the prevailing investments in passenger and freight rail reveal an acute awareness for the necessary, bold and far reaching efforts necessary to reposition South Africa’s rail transport services into a more competitive and complementary service. The challenge however is matching the existing investments underway that may be structured to complement and further reinforce the emerging policy.

The 2014 Barloworld Supply Chain Foresight (SCF) report was emphisised the importance of customer orientation in logistics and supply chain services in South Africa. 33% of the supply chain management respondent group ranked `improving service levels to customers’ a top strategic objective over the next 5–10 years. The cost of transport was rank as the most constraining factor in the same report. The 2015 SCF reports that customer focus is still key, but the key constraining factor to redress over the next 5–10 years is the ‘willingness to change/breaking old habits/relationships’. This year’s report focuses on managing change, and the tone toward the role of government is that it needs to “provide visionary plans, which determine the success of the country and its people to achieve agreed goals, objectives and targets.” And the efforts from private sector in this require companies “to establish the appropriate processes and responsibilities to identify the need for change and develop the strategies, plans and tactics necessary to do so.” Thus, for organisations to survive today in supply chain sectors, the ability to realise customer orientation the readiness to change and bridging the gap between public and private sector is crucial.

In calling for the revitalisation of rail, the core of the GPRP is the vision of an “integrated railway transport system that is efficient, reliable, effective, safe and stimulates the economic and social development of South Africa.” The policy principles guiding the policy are heavily oriented toward collaboration, participation, consultation, fairness and transparency. Both freight customers and passengers appear to be as valued as upstream participants such as private sector and other stakeholders’ involvement in service provision. The document reveals that “the National Rail Policy envisages investing in a world class high performance new network comprising, where appropriate, high density freight- and passenger corridors, to move South African railways into renaissance, and so recapture rail’s proper share of the national transport task in a developmental economy.” It thus calls for a significant and uneasy shift from the status-quo toward a corridor oriented, customer focused and high density efficient level of service delivery for all kinds of markets, households and companies. Whether we call it reform, renaissance or simply change, what appears inevitable for both passenger and freight markets is a new agenda for South African rail transport services.

[1] Also see a recorded meeting in this regard.

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