OPINION: Transnet SOC Limited an Unlimited Giant

Headline in the Sunday Times “Molefe’s R19bn Transnet ‘lie’” made me reflect on how easy it is to slip into the corruption narrative over the balanced highlighting of industry complexities. Good and bad things happen at the same time, all the time. In this piece I see Transnet Unlimited. 

The evolution of Transnet SOC Ltd (Transnet) from dwindling railway company loosing million tonnage market share to road is reforming itself. Transitions embedded in this company are particularly interesting for me because I’m a shareholder in someway as it is a state owned entity. What makes Transnet so complex in the Freight Transport sector is that it is evolving as a giant, capital based and R 65bn revenue company (I’ll use press releases for ease of access and reading, but I do suggest to anyone really keen to get into the digital annual report platform here). Many onlookers may assume that it is stuck in the old business that lost tonnage to road freight. However the opportunities in the market look much brighter for rail transport than ever before.

Where’s Transnet going? I see it as a project based end-to-end consignment company leveraging on the inherent competitiveness of guided transport technologies — not just railways.

A point of departure may be the energy base when it’s electric the unit cost of operations is profoundly lower per ton-km. Similarity if diesel locomotives are used, distances beyond 500km seem to be ideal for rail theoretically, but in practice this can be as low as 250km depending on the consignment and transshipment infrastructure (could actually be less with new lighter guided delivery technology). In an era where energy is a commodity rising in price, and electricity is gaining traction in value, drivetrain technology is reaching an interesting point. New technology solutions have the power to break and open the freight tonnage market out of the pseudo-oligopolies in the road freight space. At the same time, regional integration is profoundly important for many raw materials that used to be exported out of Africa —  now in need of new value adding transshipment destinations. This is a new era for Africa.

Where’s Transnet going? I see it as a project based end-to-end consignment company leveraging on the inherent competitiveness of guided transport technologies — not just railways. Brian Molefe led the formulation of the Market Demand Strategy which was Transnet expending it’s supply base —  shifting the curve —  and preparing for increased demand. This ranged from new locomotives to improves systems. Freight Rail received nearly R 201bn of the budget in 2012 Rand. While domestic manufacturing of technology and systems aimed to access the continent. At the heart of the MDS was really changing the gear for Transnet into a new era.

“ The nature of this contract and the relationship with neighbouring and continent-wide rail, ports, and pipeline logistics providers tells a story of how Transnet strives to collaborate and grow its footprint on our African Continent, Middle East and South Asia. This is not only a historical event, but a key economic contribution to the milestones set out for Zimbabwe.” — Siyabonga Gama in a Seminal Press Release in Feb. 2018

When Siyabonga Gama kicked in to the company as Chief Executive Officer he practically implemented the tactical ingredients attached to the MDS recipe. More specifically he pursued an ambitious capital raising strategy through accountable mechanisms and partners such as banks and international agencies. The capital hunt was not just financial, it included institutional capital, efficiency capital and immeasurable boldness — a scarce resource. One of the most interesting take-homes for me, after following the entity for some time is the emphasis on improving efficiencies (Six Sigma by-product, I don’t know). But coupling a long-term vision that builds on existing capital, making it work better results in well fueled and hyper-transparent State Owned Enterprise that private investors could rely on, interact with and monitor.

The next crucial phase from an outsider’s view was reorienting the company toward gaining efficiencies from the existing capacity in order to render every unit invested in expanding more viable than ever. Not only did this manifest in a company with higher ambitions, but it resulted in an entity that gained traction in the million ton market (according to STATSSA) after 2014, when comparing the State of Logistics data prior to that — how consistent are the models though?). The viability of rail, and its analysis is not in million tons really —  I care about the ton-km composition of the market. What is clear is that rail has had a ton-km share of the market that practically accounts for nearly half of South Africa’s freight market . In other words, while transporting substantially fewer tons rail freight takes on the longer distance market. So there’s a lot that is misleading, railways are in an increasingly better place. It’s actually at a point where the road freight sector needs to seriously sit with the public sector and get the conversation going for their own sake. While platooning automated trucks is a hot topic, and operational efficiencies are blatantly changing quick, unit costs are increasing monthly and not just due to petroleum price pressures.

Back to rail: Transnet 4.0 is probably the most compelling narrative for the railway industry in Africa. It’s a catalytic repositioning of a company to get ahead of all freight sectors on our continent. As an entity expanding toward having a technology infrastructure that enables more than just basic transactions — emulating General Electric and other entities — it should be clear that we are only scratching the surface. The far reaching implications of a multinational State Owned Enterprise purport a deeply rooted business that is not only well governed, but that is highly motivated by the increasingly competitive landscape. While it is the norm for Grindrod or Barloworld Logistics to unbundle their corporate reach, it is rather exciting to see Transnet potentially following the footsteps of Airports Company South Africa (ACSA) in terms of extending their tentacles (as one friend of mine puts it). While the headlines may paint a dim picture for leadership, and purport a systematic rot in this national asset, there is also deeper more exciting evolution taking place and industry leaders are taking keen interest in what will follow. With regard to smaller towns, and emerging regions — Transnet should play a profoundly catalytic role in their activation and long-term sustainability. I’ve heard and seen some work related to reviving various branch-lines that SMME’s should be looking into with great seriousness (can’t say much more).

Perhaps a balanced view, highlighting the complexities, efforts and sweat behind public assets which employs thousands of highly valued persons who keep this economy ticking. The primary sector, has always been our saving grace in SA, and it is largely driven by Transnet from moving coal to iron ore — there is much to value amidst the need to hold people accountable. At some point we need to stop burning our own ships, start blocking the leaks and facing the coming storms. I still see a Transnet Unlimited.

Originally published on Medium. More content can be found on  https://medium.com/@Hlulani/ | That’s the stuff.

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