October transport month. Let’s use it as a benchmark to estimate the impact of COVID19 on the passenger and freight transport markets. Taking the January to October period for 2019 and 2020, this brief note outlines the size of the losses through the apex of the lockdown since March, and its long-levelled tail toward October. 

Passenger transport

The passenger transport market boasted a R10.1bn in income, for 395 million passenger journeys. Rail transport only represented R1.8bn income for the first ten months of the 2019 year, while road also dominated with 243 million passenger journeys—that’s 61.5% of the total market. 

COVID19 offered a number of evolving restrictions for the land passenger transport market in general. Major instruments of control shifted organisations toward virtual interactions, or telecommuting; introduced travel curfews specifically for activities deemed essential; and restricted international and intra-regional travel (i.e. between provinces). During the hard lockdowns, level 5 and 4, travel demand in South Africa dipped significantly, and neighbourhood travel increased. Minibus taxis were the remaining mode of public transport, city buses had limited operations and non-motorised transport (walking and cycling) increased significantly albeit it was a initially neglected. None of these are part of the Statistics SA Land Transport Survey, as trains had stopped operating and bus companies were scanty, thus the complete macroeconomic picture is unclear.

A recent study from the World Wide Fund describes the broad complexity of policy changes throughout the lockdown levels. It finds that from a travel demand management perspective the COVID19 response was geared to ensuring safe mobility of essential workers, then the unlocking of the broader economy, but it lacked in carving a new normal as many countries adapted their transportation systems and services more permanently. 

With the available data, the passenger transport market shrank by 51% in journeys and 42% in income—that is a dip in 202 million passengers and a loss closer to R4.3bn thus far. 

Passenger Rail 

As PRASA had stopped operations, and emerged out of lockdown with severe infrastructure and service handicaps, journeys were down by as much as 82% and income fell by 72%– loosing R1.3bn between January and October 2020. 

Railway operations in other countries continued, and reflected a shift in travel patterns of commuters—particularly where competitive operators exist. Whereas PRASA underwent various institutional changes and faced operational failures due to a lack of effective contingencies in the midst of a pandemic. 

PRASA’s Administrator estimated a R757m loss for the year during their Annual Performance Plan presentation on 11 May 2020. The plan focused on strategic procurement of key capital programmes improving stations, safe guarding infrastructure and modernising operations (including the cashless payment systems) to the tune of R7bn, creating 20 000 jobs during the projects, of which 20% would be permanent employment. 

Overall, the budgeted gap between revenues of R2bn and operating expenditure of R10.9bn would not be matched by 2023 as they rise to R2.9bn and R14.6bn, respectively. While capital expenditure needs were thought to rise from R13.3bn to R21.1bn between 2021 and 2023. Ideally, this would see trainset availability rise from 113 in 2020, to 269 by 2023. 

These were medium-term budgets envisioned before the true fiscal impact of the pandemic was realised, but they reflect the depth of the crisis at PRASA that the new executive team and board had to confront. 

Road transport 

The road transport market reveals a loss of R2.9bn, or 35% dip, and passenger journeys declined by 32% compared with the same period in 2020. 

The South African Bus Operators Association (SABOA) did indicate that the apex of the lockdown cost them R200m, and from there members were loosing R100m per month. The South African National Small Bus Operators Council (SANSBOC) may have also been deeply impacted as contracted members have gone without operations, or with few passengers. 

In parallel, the Department of Transport used this period as an opportunity to facilitate the nation-wide Taxi Lekgotla aimed at reforming the minibus taxi industry (in order to enable the subsidisation) and the ride hailing market (in order to streamline market entry and regulation)—albeit the R1.35bn relief fund, and pending role of the National Taxi Alliance remain deferred. 

Freight transport

Broadly speaking, 771 million tons (mt) were shipped by October 2019—to the value of R139bn. The rail freight market carried 181.4mt by then, with road bearing 76% of the total tons shipped, and carrying 73% of the total payload income in the freight market. This was a typically good year for rail freight operations largely from an income perspective, but there were limits to returns as the payload share has not reached 30%. 

COVID19 regulations introduced various restrictions in the road and rail freight markets, but these were largely indirect restrictions. In the road freight market, the regulations related to consignments where cross-border activity was necessary, and thus the testing requirements which would elongate the travel time; changes in the demand for freight as firms slowed down both of which could potentially reduce fleet utilisation. 

Through ports, the impact on railways and road haulers emerged largely from brief commodity extraction limits and staff-schedules at the ports, in addition to the prioritisation of essential goods over others. These rippled into the performance of the industry as some haulers had to search for new supply chains to latch on to just to survive, and others were forced to shrink costs too. 

The market dipped by over 13% in terms of payload, and 11% in terms of income, to 665mt and R122bn, respectively. Road freight contracted by 14% in million-tonnes shipped, and 12% in income—a market loss of R12.8bn for the first ten months of the year. 

Whereas, rail freight dipped by 11% in terms of tonnes shipped and income was only down by 9%, about R3.4bn. The inelasticity of the rail freight market reveals some of the benefits of an insulated monopoly, as the free-market road freight industry was more exposed to the value chain-wide volatility while some production lines slowed down (see Nampak’s weak annual results). As noted before, several logistics companies reported variations in their earnings, cost bases and revenue probably due the heterogeneity of companies, their business models and market structures—most companies focused on ensuring good earnings by financial year-end. 

Transnet Limited’s financial performance reveals a 17% dip in revenue, nearly slashing earnings by 47% to a loss of R3bn, nearly as much as the earnings for the 2019 year, over 6 months. Audited results reveal a R4.5bn base in headline earnings, for year-ending in March 2020, albeit loosing R18.4bn in income. The first six month of this year show Transnet loosing R5.5bn in income already. 

It is rather evident that while income and other indicators broadly reflect a resilient freight market, industry level results are significantly mixed based on the composition of the businesses involved and the markets in which they operate. Leading toward the lower end of the tail, as the freight market recovered, truck violence re-emerged exposing the industry to significant operational and political risk. While there is limited clarity about the resolve, it seems this issue may be carried over into 2021.  

Businesses with a strategic focus on product development in this times may bring an uptick in labour absorption in the long run, but other companies may not take that route– they may stick to their status quo thus reactively persuade their balance sheets to survive.

Starting at a lower gear

COVID19 impacted the passenger and freight markets in quite unique and similar ways. There are a number of issues that we will be carrying over into 2021, and we will be anticipating them. In the passenger market, a stronger appetite for travel demand management may emerge in the policy environment—especially for managing change. 

In the freight market, the impact will be sector specific and dependent on supply chain demand factors, but a much stronger appetite for more resilient markets is more likely. We are seeing companies reacting differently, Barloworld is choosing to invest in a narrow focus and move away from direct involvement in Motor Retail. Imperial Logistics may lean-in on an Africa focus, potentially as a gateway logistics offering which could require the sale of European business– it already sold 90% of its stake in Multinaut (a shipping logistics company with bases in Vienna and Regensburg).

However at an operational level, many transport companies will seek to find points through which they can recover: which may involve the short term reduction in operating costs (labour cuts), and gradually ramping up. We already see this in Greyhound and Citiliner’s accelerated closure early in 2021, and in Putco’s significant job cuts.

Tactically, old issues with short branches but deep roots will remain difficult to uproot without attending to them in the heat of action—whether it is in the minibus taxi industry or the road freight market. These include public and private investment in the passenger transport market; unresolved border development issues along African corridors, and freight transport interchanges. Companies with long-term investment plans will inevitable take a back foot on those plans as cashflow erodes.

One critical policy signal for domestic and international investment and development finance hangs on the economic regulation of transport. If this Bill goes through in 2021, PRASA and Transnet Ltd. may have to make adjustments to their forecasts toward 2025. However, what we will see in 2021, and potentially 2022, are lag effects of companies making it through the first wave realising that in order to get through 2021 they need to reduce their cost footprint, and leverage on their core competencies.

Businesses with a strategic focus on product development in this times may bring an uptick in labour absorption in the long run, but other companies may not take that route– they may stick to their status quo thus reactively persuade their balance sheets to survive.

Furthermore, industries such as public transport and road freight, will have to gear up for a different policy environment—uncharted territory and a host of new voices. This is probably a version of “business unusual, as usual” and we’re binge-watching.

Hey, thank you for reading this note! Keep your head up!