Since its formation in 1991, Transnet SOC Ltd. took the responsibility upon itself to represent the transport infrastructure and operations which would receive neither government guarantees, nor subsidies from the state.
It was instrumentally formed through the Legal Succession Act, or rather the Transnet Limited Amendment Act No. 52 of 1991, which would turn the name South African Transport Services (SATS) to Transnet Limited and make various other provisions in this regard.
It is not hard to tell that the business has come a long way between then and now. But it must be acknowledged that freight rail infrastructure was invested under circumstances which were most favourable for its development. The market was had no technological competition until the 1930’s, which resulted in the Motor Carrier Act, and various other amendments. All were aimed specifically at controlling and limiting the entry of competitors in the market.
Letting go of a motor carrier platform
I found it rather surprising or strategically unusual that at a time when road freight transport was increasingly getting a hold on the national economy, Transnet Ltd sold its fleet management platform.
Recall that modern-day Transnet Ltd was carved by Maria Ramos and her team between 2004 and 2009, the primary focus here was to improve governance and ensure efficiency gains. An underlying goal was to bring the efficiencies through focus, lower unit cost profiles and good financial performance (with reporting and governance prerequisites). The end result laid a foundation for a company which we see today.
In addition to disposing of non-core assets such as South African Airways, Transnet Ltd. sold-off Viamax Holdings, their fleet management and leasing division to Bidvest in 2007 for R1bn. This was after raising R1.5bn for the acquisition, and Bidvest had a revenue base of more than R100bn “for the first time”. Viamax Holdings expanded Bidvest’s reach from three regional offices to 23 across the nation.
This platform could have been veered more strategically toward capitalising on the growth in road freight and embedding Transnet Ltd. in this lucrative market, instead, they chose to adopt a competitive disadvantage by not having a foot in an integrated logistics network of services.
Transnet needs to compete for customers
Under Siyabonga Gama Transnet Ltd. was leaning into a strong focus on increasing its capacity to provide integrated logistics – a complete service—in order to capture some of the Fast-Moving Consumer Goods segments.
This was partly driven by commodity markets, but it was also motivated by the project-base strategic direction which combined with his predecessor Brian Molefe’s Market Demand Strategy set the scene for Transnet Ltd today.
Today, Transnet SOC Ltd. argues that it needs to provide more integrated logistics and dive into a more concession oriented business model if it is to survive the new wave. This is what the company is gearing up for, according to their 2020 Integrated Report, but they will need to draw on their history to truly leverage on returns between cross-subsidisation and taking the long-run risks. They say: “balancing short-term and long-term interests remains one of our most complex trade-offs”. But it was this balancing act which caused them to loose freight footing by selling off Viamax Holdings.
What they need is to harmonise their business model and align it with current and future customer needs, not in terms of the type of goods, but by the principles of their service.
They need to concession approach to customer service and design their business from their clients to their operations and infrastructure; not from their forecasts and capacity needs (as in the Market Demand Strategy).
Furthermore, if this is the “end” of capacity expansion, then it is in the order of business to begin plugging into the broader market for logistics. as a result their core growth is premised upon efficiency gains from private sector participation. This is hedged against regional expansion and loosening the business from non-core or underperforming assets.
Focus on the “New Growth” bar: integrated logistics infrastructure; manufacturing; spatial development; and disruptive technology. Two of these offerings work and are already in line with Transnet Ltd. strategic direction: integrated logistics infrastructure and spatial development. Manufacturing is a different dimension of the business and it should be treated separately entirely.
Disruptive technology needs to be leveraged on, not absorbed — this creates a distracted business trying this or that but not focused on taking advantage of what they have already: same mistake with Viamax Holdings.
Selling Viamax Holdings should have been a lesson: leverage on the future needs of customers, not internal organisational preferences.
Thank you for reading.