#180 Future freight and Africa’s intermodal fate

AFRICA’S BACKBONE: There’s very little we can do without improving our railways, economies slow down because of inefficient, uncompetitive and ineffective freight transport infrastructure, industries and regulations. This week’s Mediated Conversation on SAfm with Stephan Grootes, Caiphus Kgosana (Executive Editor Sunday Times), Jack Van Der Merwe (CEO of Gautrain), and Con Roux (N3Toll Concession). Here Swartruggens station, in the North-West Province is exposed and free for all to cross and dwell– symptoms of the bare business of the railways.

Within a short space of time, the conversation about Africa’s rail futures has gone from a China funded side-topic for mineral extraction, to an African Union agenda for 2063. So far, some of the key spring-boards underlying the conversation is that Africa needs to be able to trade with itself efficiently, competitively and effectively. 

The efficiencies are derived from high quality skills, technology, systems and infrastructure feeding into various types of regional value chains (or supply chains at least) that connect industries, services and institutions. Competitiveness leans on market access, practices and coordination which may encourage optimal pricing, expansive business models (i.e. Ethiopian Airways) and may also lead to protectionism (i.e. encouraging domestic development first). Effectiveness is subject to regulation, policy consistency and implementation within the structural compositions of the countries involved. Thus far, the AU has made three structural offerings: (1) African Continental Free Trade Agreement; (2) Single Air Transport Market; and (3) Integrated High Speed African Rail Network and this is underpinned by various road and rail corridor initiatives backed by various public and private sector actors. 

This past Sunday, Caiphus Kgosana reported that the relationship between Transnet Ltd and Passenger Rain Agency South Africa is moving toward a different direction in terms of infrastructure custodianship. At the heart of his report is a document from Transnet Ltd, which seems to be unavailable, and the White Paper on National Rail Policy (WP on Rail). The WP on Rail practically describes one key issue underlying the future of rail transport in SA: the separation of infrastructure from operations. This is in principle and important shift because it opens the efficiencies discussion through increasing opportunities for market access by other players without encroaching on this dual mandate. In essence, where economic regulation is concerned, the WP on Rail purports that Transnet Ltd may become a custodian of infrastructure while its operations will be exposed to new entrants in the freight market. For passenger rail, it appears that PRASA may become more exposed to competition and unbundling through various types of Public Private Partnerships to enable this transition. 

Separating infrastructure from operations is one way to curb cross-subsidisation, within such a vertically and horizontally integrated entities like the State Owned Enterprises in the rail transport space. National Treasury placed an emphasis on this issue within the context of (a) pricing roads right and (b) encouraging competition in the rail transport market. Both need an access charge that is set appropriately for entrants to use the infrastructure— so far road freight haulers appear to be underpaying for their impact on infrastructure; while potential rail entrants have only had access to relatively unprofitable concessions (other than the Gautrain, Grinrod and a few others). Nevertheless, determining this access charge will be an important determinant of preference when it comes to how infrastructure is used. 

Of interest to many stakeholders is the impact of the shift from road to rail on the roadway industry. However, it is much more important to explore the pre-requisites for getting this shift right in the first place first, prior to considering a mode specific impact. Consider for instance that rail transport just can not complete trips from supplier to customer unless if there is a private siding— this is not feasible for all industries, but it might be for specific regions or economic zones. Again, what is crucial here is to ensure that there is consistency between industrial policies and transport policies, without which the Special Economic Zones may loose out on an even stronger value proposition for investors and industrialists. A major pre-requisite is being able to enable rail transport to complete the trips through “transshipment”. That is to say, our ability to move consignments from one mode of transport to another. What does this need? On one hand it needs a deeper understanding of customer orientation and the role of rail transport . It also needs an intermodal facility that is efficient in operations and service, competitively priced, and effectively regulated. 

“Broadly, the aim of intermodalsim is to utilize the most operationally efficient and cost effective combination of transport modes to convey a load of goods to its final destination–using each individual mode to its best effect”

David Lowe, 2005, Intermodal Freight Transport
HIGHER DENSITIES AND LOWER COSTS– Presenting an intermodal solution results in higher densities– more million ton kilometres per route kilometre at a lower cost per ton kilometre. In other words, the inter modal solution presented in Jan Havenga’s work suggests that there will be more tons concentrated for the distance they are transported along a specific route. As this concentration of tons and distance (in some respects) increases, the cost per ton-kilometre decrease dramatically.

In 2012 already, Jan Havenga argued that SA needs to densify its corridors, serve segment specifically and invest in intermodal facilities which lean on economies of scale and reduce the carbon footprint with cash savings of nearly R7bn per year: this they called our ‘domestic intermodal imperative’. The key, as noted in the quote from David Lowe, is that we need to use each transport mode for its inherent qualities. As a result, the conversation is much less about shifting from road to rail, but more about using the right mode for the job: fit for purpose. All in all, every mode whether aviation, maritime, pipeline, rail and road is dependent on how they collect, connect, tranship, distribute and deliver to the ever demanding customer. If we do this well, the cost of infrastructure (i.e. some standard gauge tracks, new facilities etc.) may well outweigh the broader long-run benefits in a wider economy: this stands to be confirmed. In line with the African Union Agenda 2063, our focal point as a country is to (a) improve regional trade logistics networks; (b) encourage domestic aviation companies to flourish freely; and (c) enable the kind of infrastructure we need by 2060 to be funded and developed now. These are significantly unpopular positions because they do not simply serve our current needs, but open a new frontier for the next generation— the ones who are not yet born. What is important is planning, strategising, financing and taking action now because mega-projects of this nature take more time than most expect, especially on a continent that Ayi Kwei Armah calls a place where “poverty is nonsense”. 

“POVERTY IS NONSENSE”– Ayi Kwei Armah outlines a broader, historical narrative embedded in the institutions that are crucial for the African continent. Given the AU’s ambition for the Great African Museum, it is important to understand that industries are dependent on the social mores that underpin logic and value systems used to design organisations. The future of industry in Africa goes beyond the numbers, but rather leans in to a world view. Ayi Kwei Armah highlights that on a continent that has been exploited for so long, yet remains abundant with resources, poverty in Africa is thus nonsense.

Thank you for leaning in on this one. Big ups to SABC and SAfm’s Stephan Grootes and team for asking me to join their mediated conversation– podcast linked above. A few more to come: drop a comment below.

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