For some years, road has been the preferred method of transporting freight, but plans to upgrade Transnet’s infrastructure, as well as increasing fuel and toll prices, may swing the pendulum back to rail.
It is a well-known fact that South Africa’s rail infrastructure has seriously deteriorated over the past decade. This has inevitably led to companies choosing to utilise road freight as a means of transporting goods, with the concomitant effect that rail freight has lost a lot of business.
However, with government having finally committed to a massive upgrade programme in terms of both rolling stock and the rail network itself, things could soon change. When one factors in the fluctuating fuel price and the growing number of toll roads springing up – with worse to come in Gauteng if the government has its way – road freight may be facing a major crisis.
Transnet’s Upgrade
Transnet CEO Brian Molefe is certainly confident that the R300-billion capital expenditure programme should meet market demand by 2019. While this large sum is not all going towards the railways, with ports also due for upgrades, he indicates that the majority of the investments will be made in general freight rail.
“The country’s current rail infrastructure is 158 years old and in some places we are utilising tracks that were laid at the turn of the last century. In fact, no new rail line has been laid in South Africa in the past 30 years,” he says.
Molefe believes that if companies were to utilise rail more often, it would significantly lower the cost of doing business, while also being more environmentally friendly. To this end, he hopes to witness an increase in the amount of agricultural and domestic produce carried by rail in the next few years.
“Certainly, if we achieve what we have set out to do, we will be a very different company in seven years time.”
According to Ash Boodram, MD of Bidfreight Intermodal, if Transnet’s upgrades and improvements come off as promised, it will certainly have a major and positive impact on rail freight.
“The key factor, however, is predictability. This is the most crucial aspect the railways must get right if they want to make inroads into the road freight market. Businesses need to be assured that the trains will run timeously and will get from A to B as promised,” he says.
To this end, Transnet Freight Rail (TFR) launched scheduled rail services last year. Siyabonga Gama, TFR’s chief executive, says that this will allow Transnet's rail system to become more reliable.
“Not only is this what customers are demanding, but we expect it to enable the railways to deliver an increased amount of tonnage. By moving from the old tonnage-based dispatching, where trains were only run when enough traffic had been accumulated, we are able to make the service more consistent,” he says.
He adds that the benefits of a scheduled service are enormous. If trains depart on time, with the right wagons and load, they will arrive on time and this will lead to improvements across the entire logistics spectrum.
“Moreover, since an effective rail service can be up to 60% cheaper than a transport source, money saved here can be redirected into other areas that can assist in growing the country’s economy.”
Gama explains that there are other advantages too. Reducing the need for long-distance road transport, he says, means cutting down on carbon emissions. It will also reduce the impact of traffic on the roads.
“Obviously we will be working closely with the trucking industry to ensure that together we can achieve what is best for South Africa,” he states.
The Road vs Rail Debate
However, Gavin Kelly, technical and operations manager at the Road Freight Association (RFA), questions whether TFR’s plan will have a real impact on the amount of traffic on the roads. He feels that even though Gauteng’s highways have been upgraded, more traffic seems to be using the highways in response to these improvements.
“Still, I have no doubt that everyone in our industry would support rail playing its part – after all, rail works really well for transporting single commodities on a point-to-point basis – but it is not really geared towards delivering break-bulk freight,” says Kelly.
“One thing that would be vital is that if there is a move to take more freight, such as fuel transport, off of road and onto rail, it is done as a long-term project. This would mean that players in the road freight industry have fair warning and don’t spend vast amounts modernising their fleets if it is not necessary.”
Ultimately though, he suggests that it will be the customer that takes the decision. It is certainly about cost, but it is also about reliability and efficiency, says Kelly.
“There is a reason why around 87% of goods in SA are moved by road and this is because customers know it is effective and efficient. Basically, they know exactly how long it will take for delivery.”
Boodram agrees that pricing and dependability are factors that have played a role in rail losing a lot of business to road in the past couple of decades. “A lot of the goods go directly onto shop shelves, so the first shop that has it in store is the first that makes the sale. With time-sensitive cargo such as perishables especially, road makes more sense,” he says.
“As a rail man, I am biased in thinking that any cargo – container or break-bulk – should be delivered by rail, as I believe it would make the roads safer and reduce wear and tear too. In this ideal world, road would only be used for short-haul delivery to and from the rail terminals.”
Escalating Costs
Kelly remains concerned about the increasing, and fluctating, fuel price. He points out that around 40% of operating costs are fuel-related, so when the price see-saws drastically, it can have a major impact on a company’s day-to-day cash flow.
“In addition, it is becoming more difficult for businesses to obtain contracts over long periods. Many customers now prefer to work on a consignment basis only. This means that it is more difficult to amortise the fuel cost over a long period.”
He adds that it also impacts maintenance costs, while an increase in the fuel price leads to increases in everything else, including salaries. This makes it especially tough on the small- and medium-freight players.
As for the tolls, he says that the long-distance tolls tend to increase in line with inflation, so they can be factored in. However, something like the proposed e-tolls in Gauteng could have a serious impact on the smaller operators, making it tough for them to survive.
Business Unity South Africa (BUSA) certainly agrees, and has come out in support of the court decision to delay the implementation of the tolls. According to BUSA, the most recent tariff schedule, released by the department of transport in April, would have far-reaching and significant implications for the cost of conducting business within Gauteng and throughout the country.
BUSA adds that road freight plays a critical role in facilitating the movement of goods within and beyond South Africa’s borders and is of primary importance in international trade. The industry also features large numbers of small and medium enterprises, and has a direct impact on the price and availability of goods throughout the region.
The impact on the road freight industry in terms of jobs, employment creation and prices of goods, it states, cannot be ignored.
A Place for Both
Kelly is quick to point out that many of the large transport companies are in fact logistics organisations. This means they offer more than just road transport. He suggests that these businesses utilise the best option for each leg of the journey, and this often includes rail.
“Nonetheless, there are two major advantages that road freight offers over rail: the first is that it is easy to deliver goods door-to-door. For example, if a company needed something delivered quickly, it is a simple matter to arrange a truck, without needing to wait for a schedule.
“Also, when transporting smaller loads of perhaps a few tons, road is obviously the better option, since rail is designed for bulk. Furthermore, most transporters today have GPS tracking, meaning it is easy for the customer to always know exactly where their goods are,” says Kelly.
Boodram agrees that as far as the freight transport model goes, rail is really designed to move bulk cargo. He also feels that if the rail network can achieve the kind of dependability and clockwork operations that the airlines have, then more companies would consider it as an option.
“While there will always be a place for both forms of freight transport, I do think that fuel prices and tolls may impact negatively on the long-term future of road transport. If Transnet Freight Rail comes to the party as it has promised, this could also play into rail’s hands. Transnet has been very good over the past few years with regards to sorting out issues that have been impacting it negatively. The organisation is clearly committed to increasing rail volumes and should it continue to improve on its efficiency and reliability, then we will have to see just which type of freight will eventually come out on top,” he concludes.
Written by Rodney Weidemann and first published in Synergy, the CGCSA membership magazine
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