Focus on Forest Engineering

ConferenceHowick, 4/11/2009

Is Rail Transport a thing of

the past?

by

James van Zyl

Commercial Manager, NCT

This Presentation Covers:

1. NCT’s Business

2. Distribution & Logistics

3. Importance of Rail Transport

4. Recent Rail Developments

5. Conclusion

NCT’s Business

Sold 2.3 million tons in 2008

1.7 million tons exported

R1 billion turnover

60 Years of Proud Service to

our Members

Scope of Operations

Farm

Depots

Nelspruit

PMBurg

Greytown

Vryheid

George

R/Bay

Local

Buyers

Stations

Holding

Depots

BayFibre

ShinCel

& NCT

DWC

Durban &

R/Bay Ports

Domestic

Mills(Sappi, Mondi,

Masonite)

Japan

(Chips)

Norway

Turkey

(Logs)

Member Base (Resource)

2000 Members / 600 SSTG’s270 000 Ha Owned2,5 m tons/yearGeographical Spread

NCT (Administration)737 EmployeesFunctional Structure

Markets & TradingNCT Timber Holding Depots Local Markets (Sawmills, Treated poles, Mining timber)Domestic Markets (MDF, pulp)International (Log exports)BayFibreShinCelNCT Durban Woodchips

Distribution & LogisticsHolding Depots (Warehouse, Packaging) RoadRailShipping

NCT’s Subsidiaries

NCT

BayFibre

600 000 t Wattle

800 000 t Gum

ShinCel

300 000 t Wattle

100 000 t Gum

Durban

Wood Chips

450 000 t Gum

NCT Tree

Farming

30 000 ha

BayFibre – Richards Bay

Shincel – Richards Bay

NCT Durban Wood Chips

40 000 scm of Timber

Distribution & Logistics in

NCT (& Industry)

Local and International Supply

chains

Why is Logistics so important?

NCT Distribution Network

Key Elements

Grower Harvesting Road Transport (1,7m t)

Rail Transport (550k t) +

Shipping (200k t + 1,5m t)

Contractor Harvesting

Delivery Documentation

Information Flow

Communication

24 / 7 / 365

Grower

Chip, MDF & Pulp Mills

2.0 m t

Special Markets 0,5 mt

Depots

Main Volume Flows to

BayFibre & Shincel Richards Bay

Volume vs Lead Distance (All Commodities)

60,000 80,000120,000

180,000

640,000

530,000

280,000220,000

100,00050,000 20,000 10,000 10,000

50 km 100 km 150 km 200 km 250 km 300 km 350 km 400 km 500 km 600 km 800 km 1000

km

1400

km

Lead Distance (km)

Vo

lum

e (

ton

s)

NCT FORESTRY CO-OPERATIVE LTD

Movement Costs of Timber = 70 % of Gross

Value

Extraction Costs

25%

Transport Costs

45%

Production

Costs

30%

ROAD vs RAIL - January 2003 to August 2009

20000

30000

40000

50000

60000

70000

80000

Jan

-03

Mar

May

Ju

l

Sep

No

v

Jan

-04

Mar

May

Ju

l

Sep

No

v

Jan

-05

Mar

May

Ju

l

Sep

No

v

Jan

-06

Mar

May

Ju

l

Sep

No

v

Jan

-07

Mar

May

Ju

l

Sep

No

v

Jan

-08

Mar

May

Ju

l

Sep

No

v

Jan

-09

Mar

May

Ju

l

ROAD RAIL Linear (RAIL) Linear (ROAD)

Road

Rail

Actual data in this

graph!

NCT RAIL REQUIREMENT

2006 - 2010

2,400,0002,500,000

2,300,0002,200,000

2,500,000

750,000 800,000650,000

550,000 500,000

900,000

1,100,0001,000,000 1,000,000

1,100,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2006 2007 2008 2009 2010

To

ns

Sales Spoornet Capacity NCT Requirement

Gap Analysis

Why?

Infrastructure of 16 138 km

3,6 ft gauge rail track

1100 Sidings

3300 ST Timber Rail Trucks

(Vacuum & Airbrake)

600 S35 Diesel Electric Locomotives

1100 E6 & E7 Electric Locomotives

Single Biggest Current Logistical

Issue

RAIL TRANSPORT

2005

0

20

40

60

80

100

120

140

0 100 200 300 400 500

Lead Distance (km)

Co

st

(R/t

on

)

Rail Tariff (R/t) S/Haul (R/t) Rail + S/Haul (R/t)

RAIL VS ROAD

2005

0

20

40

60

80

100

120

140

160

180

0 100 200 300 400 500

Lead Distance (km)

Co

st

(km

)

Rail + S/Haul Road Tariff

Linear (Rail + S/Haul) Linear (Road Tariff)

B/E =

140 km

ANNUAL INCREASES

2002 - 2009

15 1520

5 4 7

22

13

101

8 6 37 5 6

10 9

54

8 6 37 5 6

10 9

54

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 2008 2009 Total

YEAR

%

Rail Incr. % Road Incr. % SEIFSA L-2 %

Not

Accumulative

RAIL TRANSPORT 2009

0

20

40

60

80

100

120

140

160

180

0 100 200 300 400 500

Lead Distance (km)

Co

st

(R/t

on

)

Rail Tariff (R/t) S/Haul (R/t) Rail + S/Haul (R/t)

RAIL VS ROAD 2009

0

50

100

150

200

250

0 100 200 300 400 500

Lead Distance (km)

Co

st

(R/t

on

)

Road Tariff (R/t) Rail + S/Haul (R/t)

Linear (Road Tariff (R/t)) Linear (Rail + S/Haul (R/t))

B/E =

330 km

MODAL SPLIT SENSITIVITY

Rail volume

Road volume

0

200000

400000

600000

800000

1000000

1200000

1400000

0 3 5 8

% Incr. above Norm

To

ns Road volume

Rail volume

1% = 35 000 t

ROAD vs RAIL - January 2003 to August 2009

20000

30000

40000

50000

60000

70000

80000

Jan

-03

Mar

May

Ju

l

Sep

No

v

Jan

-04

Mar

May

Ju

l

Sep

No

v

Jan

-05

Mar

May

Ju

l

Sep

No

v

Jan

-06

Mar

May

Ju

l

Sep

No

v

Jan

-07

Mar

May

Ju

l

Sep

No

v

Jan

-08

Mar

May

Ju

l

Sep

No

v

Jan

-09

Mar

May

Ju

l

ROAD RAIL Linear (RAIL) Linear (ROAD)

Road

Rail

Actual data in this

graph!

Rail: Where are we now?

Different quantums, but extrapolate NCT problem

to total industry incl: Sappi, Mondi, etc.

Timber remains a high volume – low value bulk

commodity ie. Rail “friendly” traffic

Divide & Rule attitude of TFR

Poor Cost Competitiveness

Limited maintenance on Infrastructure

Ignorance by officials of the ultimate impact of

complete service failure: direct and externalities

PBS Vehicles : GCM = 67 000kg

Rail: What we need!

To be Understood very Urgently

Index related future tariff increases

Steel & Forex levies to be abolished

Lead distance > 250 km – 30 to 40 c/t.km

Improved reliability & Infrastructure

Decentralized decision making which will allow for a locally designed customised service (collaboration)

Rail privatization – Competition

SANRAL Model

Proposed Future Structure

Wagons

Branchline Infrastructure

Locomotives WagonsBranchline Infrastructure

Locomotives

Owned & Operated by

Spoornet only

Owned by

NDOT / KZNDOT

Operated by private

operators or TFR

Private operators can

lease from TFR or own

their own rolling stock

Evolve

Mature

“OLD SPOORNET” “NEW RAILWAYS”

Commercial, Access & Safety Regulators

There is some common ground:

• Spent the R15 billion (5 yrs) on infrastructure and rolling stock promised in 2007

• Recognition of the importance of rail logistics to our rural timber growing communities

• Political Will and Administrative Capacity to change to a new commercial & free market business model and structure

• But, will we get the timing right?

Dust ≠ Movement

We need a “balanced” approach urgently

Thank You