Confidential

Department of Transport

Reduction of transportation by road:

A shift towards Rail

Select Committee on Public Services

08 February 2012

2

Department of

Transport

Problem statement

Situational analysis

Key freight corridors

Road and rail market share

Key challenges facing both road and rail industries

Key factors contributing to the decline of the rail freight industry

Strategic thrust and programmes: Some Interventions

Key Rail Policy thrust: Some Interventions

Way forward

PRESENTATION OUTLINE

3

Department of

Transport

Deterioration of the road infrastructure

Insufficient maintenance of the road network & lack of funds

Inefficiency in freight movement – modal mix of road vs. rail

Inefficiencies of rail

Deteriorating rail infrastructure

Insufficient capacity of the railways to re-gain lost market share

PROBLEM STATEMENT

4

Department of

Transport

The road freight industry has expanded rapidly since the deregulation of the industry in 1989;

A lot of cargo has migrated to road rather than rail, due to shortcomings in the rail system;

Road freight sector carries 87% of total freight in the country;

Total volume of road freight moved in 2007 – 1,373mt;

The sector contributes 5,9% (R66b) in 2007 and total land transport contributed 6,6% (R74b) to GDP on a value added basis;

In terms of land freight distribution, road freight accounts for 50% of the tonnage in metropolitan areas, whilst rail accounts for only 1%.

SITUATIONAL ANALYSIS

5

Department of

Transport

Maputo

Lobatse

Walvis Bay

Cape Town

Durban

Gauteng

Freight flow estimate for 2003

Beitbridge

Gauteng – Beitbridge

• 17 mill tons

• 90% road freight

• 40% growth to 2020

Gauteng - Beitbridge

Gauteng – Maputo

• 15.4 mill tons

• 73% road freight

• 40% growth to 2020

Gauteng - Maputo

Gauteng – EL

• 3 mill tons

• 10% import export

• 91% road freight

• 31% growth to 2020

Gauteng – East

London

Port

Elizabeth

• 7 mill tons

• 36% import export

• 66% road freight• 39% growth to 2020

Gauteng – Cape Town

• 19 mill tons

• 10% import export

• 85% road freight

• 40% growth to 2020

Gauteng – Cape Town

Gauteng – Walvis Bay

• 4.8 mill tons

• 77% road freight

• 38% growth to 2020

Gauteng – Walvis Bay

East LondonSaldanha

SishenRichards

Bay

Gauteng – Richards bay

•Transnet Freight Rail Coallink line: 66 mill tons export coal; 8 mill tons general traffic

•Pongola corridor 17 mill tons – 95% road freight

Gauteng – Durban

• 36 mill tons

• 16% import export

• 70% road freight

• 38% growth to 2020

Gauteng - Durban

Sishen - Saldanha

•Rail-only corridor

•27 mill tons

Gauteng / Postmasburg – Port Elizabeth

KEY FREIGHT CORRIDORS

6

Department of

Transport

FOOD AND FOOD PROCESSING

BEVERAGES

TOBACCO PRODUCTS

TEXTILES, CLOTHING, LEATHER PRODUCTS AND FOOTWEAR

WOOD AND WOOD PRODUCTS

FURNITURE

PAPER & PAPER PRODUCTS

PRINTING AND PUBLISHING

INDUSTRIAL CHEMICALS

FERTILIZERS AND PESTICIDES

PHARMACEUTICAL, DETERGENTS AND TOILETRIES

PETROLEUM REFINED / PRODUCTS OF PETROLEUM/COAL

RUBBER PRODUCTS

OTHER CHEMICALS

NON-METALLIC MINERAL PRODUCTS

BRICKS

CEMENT

FERROCHROME

FERROMANGANESE

OTHER IRON AND STEEL BASIC INDUSTRIES

NON-FERROUS METAL BASIC INDUSTRIES

METAL PRODUCTS EXCLUDING MACHINERY

MACHINERY AND EQUIPMENT

ELECTRICAL MACHINERY

MOTOR VEHICLES

MAIZESOYA BEANS

SUNFLOWER SEEDVEGETABLES

WHEATPOULTRY PRODUCTS

DAIRYSUGAR CANE

OTHER AGRICULTURECOAL MINING

CRUDE PETROLEUM & NATURAL GASIRON ORE (HEMATITE)

MAGNETITECHROMECOPPER

MANGANESETITANIUM

ZINCOTHER NON-FERROUS METAL MINING

STONE QUARRYING, CLAY & SAND-PITS: GRANITE

LIMESTONE & LIME WORKSSTONE QUARRYING, CLAY & SAND-PITS:

OTHERMINING OF CHEMICAL & FERTILIZER MINERALS

OTHER NON-METALLIC MINERAL MININGOTHER MINING

BARLEY

COTTON

DECIDUOUS FRUIT

CITRUS

SUBTROPICAL FRUIT

VITICULTURE

GRAIN SORGHUM

LIVESTOCK (SLAUGHTERED)

MOTOR VEHICLE PARTS AND ACCESSORIES

TRANSPORT EQUIPMENT

OTHER MANUFACTURING INDUSTRIES

WATER SUPPLY

METHANE-RICH GAS

AVIATION FUEL

NOT LISTED AS A COMMODITY

CONTAINER TRAFFIC FULL NETT TONNAGE

COAL MINING Export / Import via DBT/MPT

IRON ORE (HEMATITE) Export

MANGANESE ExportSimplified Preference

Road - Friendly

Road and Rail friendly

Rail – Friendly

Pipeline - Friendly

NETWORK DEMAND: COMMODITY SUITABILITY

7

Department of

Transport

What is suitable freight for rail?

Longer DistancesShort-haul distribution is more

efficient on road

High Volumes Rail is a bulk mover

Big parcels in a single move

Commodity TypeTypically Bulk Minerals /

Heavy Goods / Containers

Corridor EffectConcentrated corridors attract

more traffic

CompetitiveMostly Road

Friendly

Mostly Rail

Friendly

Setting the ideal Rail vs Road market share split is a fundamental driver for future rail demand

LONG-TERM MARKET SHARE

8

Department of

Transport

8

The structure of the surface freight transport market -South Africa’s surface freight transport market (million tons)

Total surface transport900mt (310) = 280bn tonkm

Road720 (250) = 180bn tonkm

Rail180 (550) = 100bn tonkm

Current rough estimates based on 1999 base caseNote: Figure in bracket denotes average transport distance

In-house560 (225) = 126bn tonkm

For reward160 (340) = 54bn tonkm

High value commodities40 (400) =

16bn tonkm

Export machines90 (650) =

60bn tonkm

Bulk commodities50 (500) =

25bn tonkm

Rest30 (520)

Gauteng-Durban16 (600)

Gauteng-Cape Town14 (1400)

Long distance,high volume,next to rail60 (750) =

45bn tonkm

Shorter distances,lower volumes,

Shortage of rail infra100 (90) = 9bn tonkm

Coal65 (600)

Iron ore25 (800)

FREIGHT TRANSPORT 2003

9

Department of

Transport

Tonnage

1105mt (270)

Road

920mt (200)

Rail

185mt (600)

Corridor

140mt (680)

Metropolitan

580mt (75)

Rural

200mt (200)

Corridor

45mt (680)

Metropolitan

10mt (150)

Rural

30mt (475)

Sishen & Rbay

100mt (670)

Figure in brackets denotes average transport distance

Tonkm

300bn

Road

190bn

Rail

110bn

Corridor

95bn

Metropolitan

45bn

Rural

40bn

Corridor

30bn

Metropolitan

1bn

Rural

15bn

Sishen & Rbay

65bn

Income

R120bn

Road

R105bn

Rail

R15bn

Corridor

R50bn

Metropolitan

R30bn

Rural

R25bn

Corridor

R6bn

Metropolitan

R1bn

Rural

R2bn

Sishen & Rbay

R5bn

CSIR 2005

FREIGHT TRANSPORT 2004

10

Department of

Transport

Tonnage

1533mt (233)

Road

1337mt (177)

Rail

196mt (617)

Corridor

180mt (600)

11,5%

Metropolitan

777mt (77)

50,5%

Rural

380mt (179)

25%

Corridor

41mt (683)

3%

Metropolitan

8mt (250)

0,5%

Rural

47,5mt (505)

3%

Sishen & Rbay

99,5mt (673)

6,5%

Figure in brackets denotes average transport distance

Tonkm

357bn

Road

236bn

Rail

121bn

Corridor

108bn

30%

Metropolitan

60bn

16,5%

Rural

68bn

19%

Corridor

28bn

8%

Metropolitan

2bn

0,5%

Rural

24bn

7%

Sishen & Rbay

67bn

19%CSIR/USB 2006

FREIGHT TRANSPORT 2006

11

Department of

Transport

Tonnage

1578mt (237)

Road

1373mt (178)Rail

205mt (629)

Corridor

196mt (591)

12,5%

Metropolitan

793mt (77)

50%

Rural

384mt (177)

24%

Corridor

46mt (685)

3%

Metropolitan

9mt (278)

0.5%

Rural

51mt (529)

3%

Sishen & Rbay

99mt (687)

6%

Figure in brackets denotes average transport distance

Tonkm

374bn

Road

245bn

Rail

129bn

Corridor

116bn

31%

Metropolitan

61bn

16%

Rural

68bn

18%

Corridor

31,5bn

8,5%

Metropolitan

2,5bn

0,5%

Rural

27bn

7%

Sishen & Rbay

68bn

18%CSIR/USB 2007

FREIGHT TRANSPORT 2007

12

Department of

Transport

Road damage due to intensive use

Congestion, accidents & pollution caused by road

High freight volumes on road

Insufficient rail capacity – road is the default mode

Ageing rail infrastructure

Lack of integration amongst major transport modes – road, rail, air, maritime, and pipelines

KEY CHALLENGES FACING ROAD AND RAIL

13

Department of

Transport

Lack of flexibility in service offering

Insufficient investment in network and rolling stock

Limitations of out-dated technology for high volume intermodal traffic

Lack of customer focus

Restrictive working practices and insufficient drivers

Insufficient investment in training, developments and staff retention

Limitation of interoperability due to a variety of incompatible traction power, rolling stock, signaling and train radio systems have emerged on different parts of the network

FACTORS CONTRIBUTING TO DECLINE OF FREIGHT RAIL

14

Department of

Transport

Objectives Addressing the issues of:

Create efficient & integrated transport logistics system

Enable transfer of appropriate commodities to other modes

Excess freight on the roads

Poor roads (through less utilisation)

Strategic programmes Description

Integrated Transport Commission

Technical body to coordinate, evaluate & approve transport plans & investments for integration of the individual modes

Ensure balanced transport infrastructure spending across the various modes by taking into account the national interests

Alignment of Transnet’s mandate

Greater alignment of Transnet’s goals with the country’s needs

Current challenges within rail can be associated with the conflicting mandate of Transnet

Rail linkages with other modes / Inter Modal Terminals

Improve the connecting infrastructure between rail & other modes to promote a sustainable modal split

Targets for rail at ports Set specific targets for rail mode utilisation at the ports

STRATEGIC THRUST & PROGRAMMES: SOME INTERVENTIONS

15

Department of

Transport

A clear rail industry model that entails that would be determined by the outcome of the Rail Policy, which articulates on the following:

Intensive investment programme Accessibility and Competition Regulation etc

A need to expedite the implementation of the rail revitilisation programme to address the inherent inefficiencies in Rail Transport;

Introduction of new technology where possible;

Promotion of Rail Transport as a mode of choice for passenger and freight transportation and implementation of a strategy to move certain current road cargo back to rail;

KEY RAIL POLICY THRUSTS: SOME INTERVENTONS

16

Department of

Transport

Active state involvement in the facilitation of investment and private sector participation;

A need for a national programme of recruitment, training and skills development;

Implementation of a strategy to revitilise and develop branchlines;

Facilitate the introduction of Rail micro enterprises and cooperatives;

Implementation of a comprehensive strategy for safety and security ;

Establishment of local industries for local procurement .

KEY RAIL POLICY THRUSTS: SOME INTERVENTIONS (Cont)

17

Department of

Transport

Higher freight demand and insufficient capacity of the railways has led to road becoming the default choice of land transport and this need to be reversed

All stakeholders in the freight sector must come on board and contribute towards making rail a viable option, including Transnet, hence the proposal to establish an Integrated Transport Commission

The draft Road Freight Strategy being finalised

The process of finalising the establishment of a Single Transport Regulator is underway

The process of finalising the establishment of the Rail Economic Regulator is underway

The process for the development of the Rail Policy is taking shape. The draft Green Paper is currently being finalised by DoT for Ministerial approval. Further consultations on the Green Paper process is proposed as outlined below:

WAY FORWARD

18

Department of

Transport

Formal launch of the Railway Green Paper;

Undertaking stakeholder consultation;

Cluster and Cabinet processes;

Parliamentary processes;

Formal adoption of policy (White Paper) by Cabinet.

WAY FORWARD (Cont)

19

Department of

Transport

Thank you