Transnet Aims to Boost General-Freight Share as Commodities Slip

  • South African state entity seeks to double market share to 45%
  • Ports, rail operator attracting goods transportation to trains

Transnet SOC Ltd. is seeking to double its share of South Africa’s general-freight market over the next ten years as the government-owned rail and ports operator adjusts to lower-than-expected demand from miners after commodity prices fell.

Transnet is seeking to transport as much as 45 percent of non-mined goods such as steel products in the country, compared with about 22 percent now, Chief Financial Officer Garry Pita said in an interview on Monday after the operator presented its full-year financial results. The Johannesburg-based company has budgeted to invest about 112 billion rand ($7.3 billion) in the general-freight business over the next ten years as it seeks to shift the movement of goods to its rail lines from roads.

“We shouldn’t be relying just on coal and iron ore and heavy minerals and mining, given the economic slump and the commodity price fall, we should be looking at gaining market share in general freight,” Pita said. “Given the fact that we’ve got new infrastructure coming online, new locomotives, new wagons, we should be cheaper and more reliable than anybody.”

Transnet Chief Executive Officer Siyabonga Gama is seeking to increase the level of consumer and manufactured goods transported on the company’s rail lines and reduce a reliance on coal and iron ore. Prices for Transnet’s two main export commodities dropped by more than 20 percent in both 2014 and 2015 and key mining customers have responded by deferring expansion plans, the CEO told reporters.

Trucking Competition

General freight “is the area where we are in heavy competition with trucks,” Gama said in a presentation. “We will be able, as the years move ahead, to be able to take much more market share from trucking.”

South Africa is the world’s biggest manganese producer and the continent’s largest source of iron ore and coal. Iron-ore export volumes dropped to 58 million tons from 59.7 million tons in the year through March, while coal declined about 6 percent to 72.1 million tons.

Transnet has delayed a planned expansion of its iron-ore line capacity and said in November it extended its capital-expenditure program to as much as 380 billion rand over 10 years, compared with an earlier plan of 336 billion rand over seven years. A proposed rail line to coal fields in the Waterberg Basin in the northern Limpopo province will probably only begin operations in the 2020 or 2021 and plans for a new line through Swaziland have also been postponed, Gama said.

The company is planning 22.8 billion rand of capital expenditure in the current financial year, compared with 29.6 billion in the previous 12 months, and will seek to match future spending with “validated customer demand,” the CEO said.

Earnings before interest, taxes, depreciation and amortization gained 2.6 percent to 26.3 billion rand, after revenue rose 1.7 percent and the company achieved 6.6 billion rand of cost savings, Gama said.

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