TRANSPORT

On the right track

Cobus Russouw, chief integration officer of Imperial Logistics and TFR CEO, Siyabonga Gama
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Transnet’s largest division, Transnet Freight Rail, has recently signed two very important MoU’s set to strengthen our road to rail infrastructure.

In an unpredictable economic climate that has seen major competition evolving in the transport sector, some truckers and railwaymen are talking about using each other’s strengths to do business together.

Transnet Freight Rail (TFR) and Barloworld Logistics have signed a worthy Memorandum of Understanding (MoU) that will make it possible for the state owned utility and the private logistics partner to incorporate TFR’s long haul service offering into their end to end logistics solutions, which could reduce costs, improve safety and lower carbon emissions.

The new relationship will provide clients from both alliances with a more flexible and efficient service aimed at exploring multi modal collaboration opportunities within the logistics and transport sector. The companies aim to leverage road and rail logistics capabilities and address other externalities such as road congestion, road accidents, greenhouse gas emissions and to lower the cost of doing business for customers.

Transnet owns and maintains a network of over 20 500 route kilometers while Barloworld Logistics is a supply chain and logistics management solutions provider in Africa, the Middle East, Europe and the Far East. The multinational corporation is headquartered in South Africa and operates in 26 countries worldwide.

Optimising inventory planning now requires an unprecedented degree of flexibility, while retaining the visibility provided by maturing software solutions. Business intelligence solutions need to provide the ability to have a seamless view of what is happening across the entire supply chain network. We are a distributor of leading international brands, providing integrated rental, fleet management, product support and logistics solutions and we generate some R50 billion in annual revenue.

Barloworld’s logistics operations increased earnings by 25% to R2.1 billion in the six months ended March.

Operations

Transnet has undertaken an ambitious seven year, R301 billion capital expansion programmes, of which it is funding two thirds from cash generated from its operations.

South Africa has 21 000 km of railways – one of the single biggest networks in the world – yet the local freight business is dominated by trucks. Not much new track has been built since the railway construction boom peaked in the 1920’s – the heavy haul ore are coal lines being notable exceptions.

The collaborative agreement follows last month’s deal that TFR signed with another private logistics partner, Imperial Logistics, as they are driven with aspirations of becoming one of the top five best railways in the world by 2019.

TFR and Imperial Logistics signed a Memorandum of Understanding (MoU) that will reduce the adverse impact of rail friendly freight on the national road infrastructure and reduce the costs of logistics for cargo owners throughout Southern Africa.

The agreement is aimed at exploring multimodal collaboration opportunities within the logistics and transport sector. The companies aim to leverage road and rail logistics capabilities and address other externalities such as road congestion, road accidents, and greenhouse gas emissions and to lower the cost of doing business for customers.

The initiative brings together TFR efficiency in long haul rail transportation with Imperial Logistics’ road freight logistics, distribution and end to end value chain management expertise. This breakthrough partnership will facilitate joint development of multi modal logistics services in support of Transnets road to rail strategy.

The agreement comes after exactly four years of engagement between the freight and logistics firms. The MoU will divert freight that is currently transported by road to a multimodal transport combination and amplify the use of rail in long haul transportation.

But the latest agreement with Barloworld Logistics will seek to accelerate the implementation of South Africa’s stated goal of shifting rail friendly cargo from the country’s roads back on to rail. This will open up new avenues for multimodal transport and logistics collaboration between the two entities.

TFR is moving ahead with a fleet recapitalisation scheme with rail related investment comprising 65% of the larger Transnet Groups R307.5 billion capital investment plan to 2020. The rail service provider is also currently adjusting bids for the supply of 599 dual voltage electric locomotives which could involve an investment of around R38 billion.

These exercises will spearhead TFR’s exercise of bringing goods that are transported by road onto the rail network that is often shunned by several companies.

During the signing of the agreement, Barloworld Logistics CEO Steve Ford stated that despite its heavy reliance on road, the company had always maintained an agnostic stance with regards to the transport platform that it used.

“Rail makes sense in light of the enormous distances that goods need to travel throughout the country and beyond the borders in order to reach areas of demand. Barloworld expects material savings from the proposed multi-modal strategy, savings that could even go some way to offsetting the costs associated with introductions of urban tolling on Gauteng’s motorways,” testifies Ford.

Drivers from around the country will, in the near future, have to pay to use e-Tolled roads in Gauteng with small heavy vehicles required to fork out R125 while large heavy vehicles will have to part with a lumpy sum of R250. Transport analysts have predicted that e-tolling will have a major impact on transport operators that will reduce their cash inflow.

“We strongly believe that moving the right product onto rail will make significant impacts on the cost of distribution. So I think e-tolling is a fact of life and customers will have to pay for it but the cost of moving to rail will strongly outweigh any cost of e-tolls,” Ford told BBQ magazine.

Single wagon load traffic – a standard railway box car is roughly the same size as a 12 meter container or a standard truck trailer – fled on road. Even bulk commodities such as coal, ore and grain, which are most efficiently hauled in long unit trains, have been seen in ever increasing amounts on South Africa’s highways.

The most visible effect of this shift has been the state of South Africa’s roads. The roads in much of the country are in appalling condition hammered by some of the heaviest trucks in the world.

Meteor sized potholes have become costing for haulage truck operators who frequently have to service their vehicles.

As the road network crumbles, the rural economy is the most affected as it crumbles beyond repair. Anecdotal evidence suggests that some hauliers are reluctant to let their trucks travel on some of South Africa’s roads.

Ford added that the ground breaking partnership with TFR should improve Barloworld’s business sustainability, as well as the sustainability of the country’s transport system.

TFR CEO, Siyabonga Gama, alluded with Ford adding that the full cost and efficiency benefits would only flow if appropriate investments were made into associated logistics infrastructure as well as into modernising and expanding TFR’s rolling stock.

“TFR has already taken delivery of, or had placed orders for, various other locomotives, which were being deployed across its heavy haul and general freight corridors. Its wagon fleet was also being upscaled with TFR anticipating the addition of more than 2800 wagons in the current financial year alone,” says Gama.

Earlier in July, TFR signed a MoU with Kirilo Savic Institute (KSI) aimed at exploring possible collaboration opportunities within the railway and transportation sector globally. KSI is a Serbian company whose activities are mostly related to the field of mechanical engineering, traffic and transport as well as municipal infrastructure.

Major logistics hubs are being planned for Gauteng as well as a number of other provinces, with a nearly R1 billion expansion already under way at Gauteng’s existing inland port of City Deep which is expected to be opened early next year.

“These investments are creating the basis for the alliances TFR is currently forging with the private sector. Transnet Freight Rail is now in a position to deliver on its commitments,” stresses Gama.

Work has already started stepping up at Transnet with the demands that will come with shifting most goods onto its rail network with Boikarabelo coal mine in the Waterberg being the latest development. The mine plans to bring its annual production to 6 million tonnes and Transnet is proposing to increase capacity on the rail line to 24 million tonnes a year by 2018 by upgrading the existing line.

“We are not getting enough volume from our senior producers so with their assistance, we are adding junior producers’ output to our rail capacity. As TFR, we simply create incremental capacity for these producers so it’s significant that we can accommodate them using spare capacity on the existing lines. As part of TFR’s mandate, it’s important to get these smaller guys into market. We are trying to assist them as much as possible,” stresses TFR Iron Ore and Manganese General Manager, Lloyd Tobias, in the Mining Weekly Online.

TFR is advancing feasibility studies on the planned expansion of the iron ore rail capacity from its current 60 million tonnes a year to 82.5 million tonnes a year by 2019. Expansion plans include the addition of supplementary arrival and departure lines at TFR’s Saldanha Bay based Saikor Yard, as well as the addition of five loop extensions, 14 maintenance loops and six general freight general loops along the length of the line.

TFR is currently operating 17 train sets – comprising 342 iron ore bearing wagons – along the heavy haul line, with each set extending 3.7km in length. Each set completed around 2.5 round trips a week taking about 68 hours to complete a full circle of the line.

“South Africa’s rail infrastructure is being significantly upgraded and expanded resulting in a significant increase in freight volumes especially in commodities such as iron ore, coal, and manganese. A large scale shift in freight transport from road to rail would also address costs congestion and reduce carbon emissions,” Gama says about the advantages of multi modal transport.

“This is a significant move by both parties as we all intend to support these projects by providing state of the art expertise and assistance. We will do this by facilitating our unique expertise and experience and access to the knowledge of our highly qualified and specialised business divisions. The MoU is ideally positioned to provide expertise to the Southern African rail and logistics systems. This will assist TFR to achieve freight volume growth targets through modernised infrastructure and rolling stock fleet with world class technologies,” he professes.

The South African Railways dominated local freight for much of the twentieth century. A network of private sidings that served businesses and grain silos and factories in all the country’s industrial areas guaranteed some form of door to door service. The gaps were filled by short haul trucks, a fleet of which was operated by the railway itself.

“Rail operators can offer a last mile solution, as United States railways has shown. Intermodal traffic (containers or trucks on flat cars, or truck trailers that can run on both road and rail) is one of the pillars of the US railroad industry and it is this business that Barloworld and Transnet hope to unlock. The intermodal traffic has not taken off in South Africa. Despite government protection, the railway has struggled to be an efficient transporter,” said economist Dan Kemp.

The average age of Transnet Freight Rail’s fleet is 37 years. Just 11% of South Africa’s inland freight is moved by rail against 89% by road, according to last year’s state of logistics survey conducted by the Council for Scientific and Industrial Research and Imperial logistics.

TFR, which is the largest division of Transnet known for its world class heavy haul freight rail company that specialises in the transportation of freight, will be supporting the second  Annual African Railway Summit and Gama has been roped into the CEO panel of the summit.

The rail system, boasted by the global commodity boom, is in the middle of an upgrade that is unprecedented in its scope and funding. Transnet plans to spend a total cost of R307.5 billion by the end of the decade. New locomotives and wagons are rolling out of the workshops and the company’s aim to be the world’s fifth biggest railway by 2019 will not be a pipe dream.

Transport plays a pivotal role in South Africa as it enables the country to achieve economic growth. The transport industry does not only facilitate the movement of freight and people, it also employs a great number of individuals and forms a major part of South Africa’s GDP.

It is not a secret that fuel costs dampen the profitability of many companies as they increase the transportation of goods hence the transportation sector is always searching for innovative and efficient solutions of curbing major cost components of all supply chains.

TFR and Imperial Logistics’ recently signed MoU will reduce the adverse impact of rail friendly freight on the national road infrastructure and reduce the costs of logistics for cargo owners throughout Southern Africa.

The MoU will divert freight that is currently transported by road to a multimodal transport combination and amplify the use of rail in long haul transportation.

TFR is driven with aspirations of becoming one of the top five best railways in the world by 2019 and they have further enhanced those aspirations by casting their nets even wider.

Imperial provides logistics services with extensive operations throughout Europe and Africa and by working with TFR, the company will aim to maximise road and rail logistics capabilities to reduce road congestion and greenhouse gas emissions and lower transport costs for its customers.

Considering that transporting goods in Africa is currently more than 80% on road, the shift to rail will benefit passengers and greatly reduce the overuse of roads.

The agreement is aimed at exploring multimodal collaboration opportunities within the logistics and transport sector. The companies aim to leverage road and rail logistics capabilities and address other externalities such as road congestion, road accidents, and greenhouse gas emissions and to lower the cost of doing business for customers.

The initiative brings together TFR efficiency in long haul rail transportation with Imperial Logistics’ road freight logistics, distribution and end to end value chain management expertise. This breakthrough partnership will facilitate joint development of multi modal logistics services in support of Transnets road to rail strategy.

“The MoU makes it possible for TFR and Imperial Logistics to collaborate to benefit the South African economy through resolving previous competitive obstacles. This is a significant move by TFR as both parties intend to support these projects. We will do this by facilitating our unique expertise and experience and access to the knowledge of our highly qualified and specialised business divisions,” laments TFR chief executive Siyabonga Gama.

Given the dominance of road freight, a key question is what needs to be done to shift bulk transportation demand to rail. Transnet has conducted extensive research and public engagement to plan for future freight transport capacity requirements.

Gama believes that this has been consolidated into the Transnet National Infrastructure Plan which forms an important part planning process.

“It will also drive regional integration, particularly in Southern Africa. The development of private-public partnerships will spread risks and enable growth of local industry peripheral to the rail industry, promoting skills and job creation. TFR and Imperial logistics have the opportunity to make a difference through their combined efforts,” he adds.

Gama has been at the helm of TFR since 2005 and has steered the company growing from a loss making division to the highest contributor of revenue for the Transnet group. He has also played a critical role in developing the African Railway industry in a number of ways.

He further stated that the collaboration with TFR would benefit the wider economy by tackling competitive obstacles and cutting down on transport costs which will prove futile.

“We are currently cooperating across several projects with a view to reducing the cost of doing business in South Africa by diverting goods to cheaper rail transport and developing a mutually beneficial logistics hub. This agreement will further enable Imperial access to Transnet held property close to major rail hubs on which the logistics group would be able to develop the required warehousing infrastructure,” he stipulates.

During the 2013 financial year, the Transnet group moved 69.2 million tons of coal along the export channel, a lower than expected increase from the 67.7 million railed in 2012. Softer coal prices reportedly dampened demand, while TFR also experienced operational problems at the Overvaal tunnel.

The importance of the transport industry necessitates that the industry is operated efficiently and effectively. As transportation costs are not the only factor that companies consider when making a modal choice decision, many companies within South Africa have been moving their goods off rail and onto road.

TFR and Imperial logistics aim to divert freight currently transported via road to multi modal combinations with the promise of a more efficient and cost effective end to end solution. The two companies intend to join forces in order to target existing volumes within their groups across various industries.

The collaboration comes at an opportune time as the overuse of roads and highways is damaging the road infrastructure and as transport companies may face the added cost of e-tolls.

The agreement comes at a time when Imperial increased its revenue in its logistics businesses to R34 billion for the financial year ending 30 June 2013, achieving a hefty 21% growth.

The European and African divisions contributed almost equally with revenue from Africa countries outside South Africa contributing almost 15% to total revenue.

Within South Africa, Imperial Logistics recorded a revenue growth of 12.4% and operating profit growth of 21.4% for the second half of the financial year.

“We have simplified our South African business through consolidation of core expertise thus leveraging scale, synergies and best practice across businesses to further improve our service offerings to our clients. During the last year, we have gained multiple new contracts, many of which with leading multi nationals across the industry spectrum. We also expanded our engagements with various businesses,” says Cobus Russouw, chief integration officer of Imperial Logistics.

“We are very excited about the structured way in which we can now engage with TFR as a partner to service our customers. We are uniquely placed to partner companies in leveraging the value inherent in their supply chains. We have been informally doing this for years. While these are two companies that would traditionally have competed, this agreement is significant as it prevents Imperial from putting the wrong product on rail and enables our respective services to complement one another,” he added.

The partnership is in line with Transnets Market Demand Strategy and Imperial Logistics multimodal logistics strategy, both of which aim at improving logistics efficiency to benefit industry and the South African consumers that are serviced by it.

According to Gama, the possibility of developing large scale intermodal hubs at transport cores such as Durban, Cape Town and Port Elizabeth. He, however, quickly pointed out that TFR is not trying to eliminate road transport but is merely trying to increase freight volume.

“We are not trying to make road transport extinct but we are trying to increase freight volumes and decrease the volumes of goods carried on our roads. Having said that, there are certain things that rail will never be able to do. The planned integration of road and rail capacity will not culminate in the long term exclusion of road as a viable freight medium,” he told BBQ magazine.

Other deals

Earlier in July, TFR signed a MoU with Kirilo Savic Institute (KSI) aimed at exploring possible collaboration opportunities within the railway and transportation sector globally. KSI is a Serbian company whose activities are mostly related to the field of mechanical engineering, traffic and transport as well as municipal infrastructure.

But the ratifying of the partnership with Imperial will facilitate the joint development of multimodal logistics services in support of Transnet’s road to rail strategy which aims to reduce the volume of rail friendly freight transported on national roads countrywide.

Imperial logistics is uniquely placed to in leveraging the value inherent in supply chains and the multi modal logistics agreement will unlock the competitive advantage contained in complex and dynamic logistics environments.

“As a multi branded business, we are in a position to optimise the benefits, scale and synergies that are derived from large businesses, while ratifying agility, customer focus and an entrepreneurial flair that characterises smaller businesses. We apply our pre eminent supply chain management skills to manage operational processes across end to end value chains of behalf of clients,” points out Russouw.

Last year TFR were presented with a gold award at the 24th Logistics Achievers Awards for the firms’ logistics excellence in dynamic scheduling optimisation while Imperial got a bronze award for logistics achievement in preferential procurement optimisation.

At last count, from a range of sources, emissions from transport in South Africa account for at least 12% of South Africa’s total greenhouse gas emissions that cause global warming.

Significantly about 87% of this is from the combustion of diesel and petrol on our roads. Trends show that transport emissions are the fastest growing and it was not surprising that the integrated logistics agreement was also hailed by leading environmentalist Louise Naude.

“In the freight sector we are researching the emissions per commodity per mode, such as moving coal on trains or food stuffs on trucks. Our main aim will be on emissions reductions options for food logistics nationally and the consequences for jobs and developmental issues like food security. Instead of Imperial regarding the future road to rail transition as a threat, they are looking to create an opportunity from it. Which is precisely the kind of synergy we want to encourage,” states Naude, who heads up the WWF Nedbank Green Trust Transport Low carbon Frameworks Programme.

TFR is the largest division of Transnet. It is a world class heavy haul freight rail company that specialises in the transportation of freight. The company maintains an extensive rail network across South Africa that connects with other rail networks in the sub Saharan region with its rail infrastructure representing about 80% of Africa’s total.

The average age of Transnet Freight Rail’s fleet is 37 years. Just 11% of South Africa’s inland freight is moved by rail against 89% by road, according to last year’s state of logistics survey conducted by the Council for Scientific and Industrial Research and Imperial logistics.

“South Africa must address critical issues relating to the road freight sector, shift freight from road to rail and address rampant skills shortages. High toll costs which are meant to ensure road infrastructure provision and maintenance result in steeper operating costs and inflation.

“South Africa’s freight transport sector relies heavily on road transport. This means the transport of bulk mining commodities such as coal and manganese and also fast moving consumer goods, over long distances, is damaging South Africa’s roads especially the corridors between Gauteng and Durban and Cape Town,” thinks Nadia Viljoen of CSIR

Future plans

According to the Department of Transport, between 2003 and 2007 the volume of freight in South Africa more than doubled. Over the next three years the government will invest R262 billion to improve transport and logistics infrastructure with the bulk of it to be undertaken by state owned companies such as Transnet.

To succeed in moving a significant proportion of goods from road to rail transport will require a dynamic shift in the way Transnet interacts with customers, greater attention to branch lines and investment in engineering, ports and rail operational skills.

The agreement will further enable Imperial access to Transnet held properties close to major rail hubs on which the logistics group would be able to develop the required warehousing infrastructure.

“Imperial brings its road logistics expertise. If you combine that with Transnet’s expertise in long haul and parcel management, the customers are going to see a very big product. A key aspect of the deal is to develop the inland market. The tendency has always been inland to port but we can now do inland to inland,” points Gama.

The partnership is in support of South Africa’s National Development Plan of ensuring that all South Africans attain a decent standard of living through the elimination of poverty and reduction of inequality through safe and reliable public transport. 

Farai Disa

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