Transnet’s critical operation and financial situation extends from bad to worse

As investors and lenders doffed their working caps for the year in December, Transnet released financial results that showed that almost everything at the state-owned transport group went from bad to worse in recent months. 

Transnet extended its money-losing streak as it released results on 22 December 2023, showing that the transport group recorded a financial loss of R1.6-billion during the six months ending September.

Transnet is important for South Africa’s economy because it is responsible for ferrying most of the iron ore and coal that the country produces and exports around the world. Transnet also has a major role in carrying freight and fuel around the country and helping importers land their goods at ports. When Transnet isn’t operating properly, many businesses and South Africa’s exports come to a standstill.

Transnet’s operations, mainly its freight rail network and ports, are in the doldrums in almost every regard. 

Exporters are facing major problems in railing their goods to market and this can be seen at Transnet Freight Rail. This is the largest division at Transnet as it generated most (52%) of the R39.2-billion revenue that the state-owned entity (SOE) generated at a group level. 

Transnet Freight Rail’s revenue, which is generated from the contracts it mainly has with the mining sector, increased by 8.1% to R20.2-billion. The increase in revenue is not a function of Transnet’s operational efficiency but an increase in tariffs it charges customers to rail their goods to markets. 

Operationally, Transnet Freight Rail remained in a mess, with volumes continuing to decline, indicating that the SOE is transporting fewer goods via rail. Beyond mining goods, this division also rails steel, cement, agricultural products, and bulk liquids. Total volumes fell by 7.2% to 75.6 million tons (mt) compared with 81.5 mt in 2022. 

There is so much to blame here: Transnet’s poor management of rail systems (hundreds of its locomotives, the heavy-haul ones that are supposed to pull the coal and iron ore wagons, stood idle and were unavailable for service), rail infrastructure being hit by cable theft and vandalism. 

Volume declines were broadly seen in the mining sector, with exported iron ore (down 6.4% to 26.5 mt) and coal (down 10.7% to 23.4 mt). This is a declining trend that has been playing out for many years, making Transnet unreliable for exporters. 

For instance, Transnet moved 56 mt of coal in 1996 on the coal rail line to the Richards Bay Coal Terminal. Coal volumes peaked in 2017 at 76 mt but fell to 72 mt in 2020. In 2021, volumes were down again to 58 mt and remained flat to 58.3 mt in 2022. Volumes declined further in 2023 to 48.7 mt. 

Inefficiencies at ports

Transnet’s financial problems