The road ahead: freeway or potholed track?

From a country without roads to a country without hope. That’s the sad picture painted by NICK PORÉE in this fascinating article… 

Before 1652, there were no wheels or roads in Southern Africa. But freight transport developed rapidly from the small beginnings in the coastal colonies, with dependence on the ox wagon for the movement of goods.

The growth of industries provided a continual motivation for improved transport. This was supplied by the construction of railways, with the first of these constructed to and from ports. In the 1800s, the three major rail routes from Cape Town, Port Natal, and Lorenzo Marques (now Maputo) were the outcomes of the politics of the period, with Natal, the Cape, and the Transvaal in a race to provide railway service to and from the Witwatersrand goldfields and the ports.

The birth of South African Railways and Harbours

There was a heavy reliance on the efficient import of industrial supplies in the absence of local manufacturing capacity. The three railway lines were completed in 1891, 1892, and 1895. After Union in 1910, they – along with all other existing railways and ports – were amalgamated into one state-owned company, South African Railways and Harbours (SAR&H).

SAR&H was given complete monopoly over the long-distance transport of passengers and freight. The bureaucratic management structure responded to the mandate to apply business principles, but was largely insulated from the competitive pressures of the commercial world by cross-subsidisation, political directives, and government funding.

With air travel becoming increasingly popular and viable, South African Airways was incorporated into SAR&H in 1934. Road transport developed slowly, with the first motor car imported in 1896. But by 1905, commercial vehicles were being imported and by 1930 there were 16 000 commercial vehicles in the country. These began to challenge railways for the transport of goods.

Enter the Road Transportation Act

The government introduced the Road Transportation Act of 1930, along with boards to control road freight competition by the issuing of permits. Over the following 50 years, the number of heavy goods vehicles (HGVs) swelled to 180 000.

By 1977, SAR&H operated cartage and other services with 2 278 HGVs, 6 828 trailers and 6 920 semitrailers, transporting about 450 000 tonnes by road.

Despite the Act, though, there was growing competition from private sector operators and steadily reducing tonnage for the cartage service.

Deregulation of road freight transport recommended

By 1980, after several commissions, the restriction of the economy caused by the SOC monopoly transport system resulted in the National Transport Policy Study (NTPS) of 1984. The study recommended the deregulation of road freight transport and restructuring of railways along commercial lines. NTPS research showed that the ratio of total expenditure to income for rail was 104%, while the corresponding 91% for private road and losses on passenger transport amounted to R253 million a year in 1976. Railway passenger subsidies were then, are now, and will always be a constant drain on the taxpayer (as in most countries worldwide) but freight transport should be cost-competitive.

The research bureau at Rand Afrikaans University calculated that at least 30% of the 131 421 786 tonnes of rail cargo in 1976 would shift to road in the first two years. Such was the isolation from competition and customer demand that a senior railway manager was heard to say confidently: “Ons se Minister sal dit nooit toelaat nie,” – our Minister will never allow it.

Origins of Transnet

On 1 April 1981, the government restructured SAR&H to become a state business enterprise known as South African Transport Services (SATS). This in turn became Transnet Limited – incorporated as a company on 1 April 1990 with the state as its sole shareholder. As the national rail operator, Transnet Freight Rail (then Spoornet) became one of the major divisions of Transnet.

As predicted, a major proportion of breakbulk and high-value cargo shifted rapidly to road haulage. As a result of the NTPS, SATS was relieved of passenger services. Over the next 10 years, it trimmed freight services, reduced staff, and closed 3 000 load points and stations. This allowed the focus on captive, long-haul bulk freight with block or unit trains, effectively closing out future breakbulk competition and integrated services between rail and road transport. After 1994, there was further attrition of experienced technical staff and operational management.

Poor port planning

One of the most serious consequences of the shift to 90% road haulage was the fact that access to all SA ports was designed for 90% railway haulage. The result is that road access and operational space are totally inadequate for efficiency even at the current near-zero GDP growth and will be impossible for the heady future volumes being flighted by Transnet, the National Infrastructure Plan, and Operation Vulindlela.

Such is the Transnet bureaucracy that planners ignore the implications of the modal switch which have – at the port of Durban – left over 500 hectares of critical port development land useless due to unused rail lines and over 2 000 scrap wagons. The entire 600-hectare former airport property is now being leased out piecemeal, instead of integrating it into a modern logistics centre for the future.

Neither was there any thought given to the need for private sector spatial development for container depots. This has resulted in the creation of over 100 hectares of depots on a patchwork of 45 inefficient small properties within 20 km of the port. Similar future planning problems are evident at Richards Bay and Cape Town.

Private sector participation not on

It is significant that at no stage in the development of the transport system did government consider or have any intention to encourage private sector participation, investment, or competition in railways and ports (as has been done so successfully internationally). Government officials have stated that “complete free competition is not to the benefit of the country”. The result is that we now have 20 000 km of track of which only 10% is used by one operator. Furthermore, we have Transnet Freight Rail service policies which offer no potential for intermodal freight and encourage road haulage of all breakbulk, and nearly all cross-border freight, as well as increasing tonnages of bulk cargoes.

Transnet National Ports Authority (TNPA) is progressively insulating itself from the massive private sector import-export logistics industry which serves the commercial economy. As noted by Ludwig von Mises, “If a bureaucratic public enterprise is to be operated without regard to profits, the behaviour of the public no longer provides a criterion of its usefulness”.

Bleak future for rail

The effect of the monopoly terms of supply is that the public (the customers) no longer uses or needs railways. The future rail market, therefore, contains only the decreasing number of “captive” industries for which railways are the only economic means to transport large bulk volumes. The huge deficits of the past two years are simply evidence of the unsustainability of the current structures.

At the ports and railways, the inefficient management; delayed implementation of maintenance, upgrades, and expansion; failure to secure assets; and deterioration of services are costing South Africa dearly. The costs and wastage are driving local firms to invest in neighbouring and overseas countries, with import and export cargo being diverted to other nations.

Local businesses are closing due to the rising costs of logistics inefficiencies. The development of a holistic, commercially viable planning process for ports and rail – with proven economic sustainability – is critically important. This process then needs to be used to curb the band-standing and random commitments being announced by various government agencies without cost-benefit analysis or integration into the logistics industry and all other infrastructure providers.