Transnet turnaround looks promising, but set to be a long haul

Transnet is starting to gain some benefits from the reform measures it implemented in recent months — though a turnaround is far off as its logistics operations are still underperforming.

The state-owned transport group is seeing early benefits in its rail network, which has been unreliable for industry as seen in the lower volumes of goods it has railed over the past four years. Volumes have continuously declined from a peak of more than 200 million tonnes (Mt) a year in 2019 owing to mismanagement of the rail system, vandalism and the theft of copper cables.

Transnet, whose financial year for 2023/24 ended last month, has unveiled preliminary and unaudited data about the performance of its logistics operations. New Transnet group CEO Michelle Phillips said the data showed positive developments, indicating the state-owned enterprise (SOE) was starting to recover, albeit at a glacial pace. 

During its 2023/24 financial year, Transnet moved 151.7Mt of goods through its rail network, which represents a 1.5% increase from the 149.45Mt moved during the previous year. 

“The preliminary data indicates that Transnet has been able to increase its revenue, it has been able to reduce its operating costs, and we have also been able to drive up volumes. A lot of improvement came during the second half of the year,” Phillips said on Friday during a press briefing — her first since she was appointed to the Transnet top job in February by Public Enterprises Minister Pravin Gordhan.

Read more in Daily Maverick: All you need to know about Michelle Phillips, Transnet’s eighth CEO in 23 years

Without offering actual numbers, Transnet, which usually generates revenue of more than R60-billion a year, said it expected its revenue to increase by as much as 12% for the 2023/24 financial year. 

“We have had to improve on our equipment and rolling stock availability to be able to achieve an improvement. We have been able to achieve a return to service of an increased number of locomotives and we have seen the delivery of some equipment at the ports,” Phillips said.

However, the rail volumes (151.7Mt) achieved during Transnet’s financial year are below the targets contained in the SOE’s logistics recovery plan. The plan commits the SOE to achieving 154.4Mt in the 2023/24 financial year. The rail volumes achieved in 2023/24 were 1.8% lower than the target, largely due to derailments on its coal line to Richards Bay. The recovery plan has also committed Transnet to increase rail volumes to 193Mt by year-end 2024/25.

Read more in Daily Maverick: Transnet’s turnaround plan is premised on securing a R100bn ‘capital injection’ from government

Transnet’s operations are a crucial cog in South Africa’s economy. They are responsible for moving most of the iron ore and coal produced in the country and then taken around the world. Transnet also has a major role in transporting freight and fuel around the country and helping importers land their goods at ports. When Transnet isn’t operating properly, many businesses and South African exports come to a standstill.

The recovery plan is largely predicated on Transnet embracing the private sector. Transnet has ruled out the privatisation of the rail network, but it wants to partner with private sector players by auctioning rail slots, allowing such players to use their skills to run trains/railway lines for a set period, while also pouring in money to upgrade and secure the rail infrastructure. Transnet has already started this process. 

Read more in Daily Maverick: Transnet reveals details of plan to rope in private sector to fix its rail network

Snags in Transnet’s port operations