South Africa: Transnet & mining sector join hands to resolve bottlenecks at rail and port

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 22 September 2021 16:09

Container ships wait to load and offload goods in port during a 21-day nationwide Covid lockdown in Cape Town, South Africa, April 17, 2020. REUTERS/Mike Hutchings

Amid an unexpected surge in demand and price boom for commodities, some miners in South Africa are sitting on stockpiles and struggling to reach 2019 export targets because of bottlenecks on rail and capacity problems at the country’s ports.

State-owned logistics company Transnet is responsible for the major rail lines used to transport bulk commodities and the ports through which the materials are exported via its operating divisions: Freight Rail and Port Terminals.

The leadership of the Minerals Council South Africa (formerly the Chamber of Mines), a mining industry employers’ organisation, recently met with that of Transnet to work on solutions to resolve the bottlenecks. According to Transnet, the Minerals Council is the representative organisation for its largest customers in mining and most of the smaller mining companies.

Iron ore, manganese, chrome, magnetite, and coal have been the worst-affected bulk commodities by the bottlenecks, Henk Langenhoven, the chief economist at the Minerals Council, tells The Africa Report.

In 2020, miners spent R72bn ($4.8bn) on transport and logistics compared to R32bn on energy. This, according to the chief economist, underscores the importance of transport and logistics to the mining sector. In fact, he goes as far as to state that: “If Transnet fails; we fail.”

The Minerals Council estimates that its members are spending an additional R400-R600m on road transport in attempts to bypass the bottlenecks on rail lines, and that Transnet could be losing out on as much as R1bn which it could earn from transporting chrome on its rail lines. Moreover, according to Langenhoven, “rail is more economically viable than road”.

The fact that, in many instances, we have to go [by] road is a further complication because now hundreds of trucks, literally, are arriving at Richards Bay or at Maputo.”

“On the issues at Transnet, don’t forget all the corruption and state capture that took place there. Transnet is in a clean-up and rebuilding phase operationally and in terms of governance, which are both important. Although important, it makes decision-making slower and there is a bit of hesitation to do certain things,” Langenhoven says.

In terms of the current situation, miners have not been able to reach the 2019 numbers. “The year 2020, as you know, was deurmekaar (Afrikaans for ‘all over the place’). We had the shocks, and you can’t compare 2021 with 2020; but in 2019 we had good numbers,” the chief economist says.

At the time, commodity prices weren’t that good, which they are now. Overall, prices in the current period are about 40% higher than in 2020 – and much better than in 2019. But “we are struggling to get the capacity both on rail and through the harbours for the tonnage of commodities that we can throw at Transnet,” he says.

Magnetite and chrome from Limpopo, as well as manganese, have relied heavily on road transport, but the latter to a limited extent. Using road transport has its own set of challenges, notwithstanding the high costs. Chief among these is that South African ports are not designed to handle many trucks. The infrastructure is more compatible with rail.

Harbours not designed for trucks

“Our harbours are designed to handle trains coming in, then the tipplers turn the wagons over and drop the material. It then gets on conveyors and onto ships. The fact that, in many instances, we have to go [by] road is a further complication because now hundreds of trucks, literally, are arriving at Richards Bay or at Maputo,” he says.

  • On the Saldanha line, iron ore is running at 80%-90%.
  • Manganese is doing relatively well because there are several options. One of these is Saldanha, although it is built for iron ore. Port Elizabeth (now Gqeberha) is the main manganese line, but it doesn’t have enough capacity and “there were all sorts of problems on that rail line.”
  • Richards Bay is the bulk harbour. The coal harbour is working well, but the rest of it is handled by Transnet Port Terminals. “Coal, we are led to believe, is running at about 60% of what is needed. Chrome, in some periods, at not much more than 40%.”

There, too, “we are struggling. Coal and chrome share a large portion of the rail line to Richards Bay. The Overvaal Tunnel can only handle a … [limited number of] trains, and it has not been expanded. There is a need for it to be at higher capacity,” Langenhoven says.

Chrome and magnetite are transported to Maputo on road via the Lebombo border post, where there are also bottlenecks because of a rise in trade. Despite this, the border post has not been expanded to accommodate the increase in trade.

Materials from South Africa are usually transported on trucks to Maputo, where the commodities are loaded onto ships for export. In the past five years, volumes have risen by 300% while values have increased by 500%.

To put the problem of congestion in perspective, Langenhoven states that last Friday, the coal price was three times what it was in dollar terms a year ago. To a degree, the price of iron ore reached similar highs but has since come back a bit. For every tonne of those bulk commodities, “we could have earned so much more,” he says.

… because of […] the pressure building for decarbonisation we get the feeling companies are stocking up and buying greener metals and minerals much more…”

However, “in some cases, miners are curtailing mining because stockpiles are running up higher and higher. They can’t get the transport flowing properly. We are working hard with Transnet on this – and it is at the highest level,” he says.

“On chrome, for example, which I am responsible for, we’ve sat down and had an outside logistics company – with Transnet’s co-operation – analyse the whole channel from the mines right through to Richards Bay, and [make] practical suggestions,” says Langenhoven.

“We are slowly getting [there] and trying to resolve the short-term issues, which are mainly operational. The sad thing about the rest of the problems is we think that Transnet has been caught by the lack of maintenance and lack of investment in expansion on both the rolling stock and rail, as well as in expanding some of the corridors,” Langenhoven says.

In a joint statement with the Minerals Council, Transnet says that it will collaborate with the organisation on “a number of key areas to ensure operational improvements across the freight system [and] to get back to target performance levels in the short term.”

What’s driving the demand

Langenhoven cites an earlier-than-expected recovery in demand, which came with a positive “price surprise” element, for commodities and the global shift towards decarbonisation as contributing factors that lifted South African mining.

The east is the main market for South Africa’s bulk commodities, including coal, but gold and platinum are the exception. The primary markets for the latter are the US and Europe. The east did not enter prolonged lockdown periods. Furthermore, an energy supply shortfall among emerging markets, including China and India, sustained coal demand despite noticeable declines in South Africa.

Although there is uncertainty around which technologies will emerge as the dominant forces in decarbonisation, “because of […] the pressure building for decarbonisation we get the feeling companies are stocking up and buying greener metals and minerals much more. The platinum group metals come to mind as well as copper and zinc,” he says.

Another welcome surprise for miners is the fact that the sector has been able to retain jobs and started paying dividends after a long dry spell.

“We saw in the numbers that employment in mining did not drop. Now we have 5,000 more employees than in 2020,” says Langenhoven.

The short-term goal for now, though, is to ensure that the sector reaps the full benefits from the welcome upswing in commodities.

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