Freight Rail 2017
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FREIGHT RAIL 2017 United Digital Admired Agile CONTENTS Navigating this report Icons key HIGHLIGHTS 1 BUSINESS OVERVIEW 2 Market Demand Strategy (MDS) REGULATORY ENVIRONMENT 4 Financial Organisational sustainability readiness PERFORMANCE CONTEXT 5 OPERATIONAL PERFORMANCE 6 Capacity creation Sound governance and maintenance and ethics Core initiatives for 2017 6 Market segment Constructive Overview of key performance indicators 7 competitiveness stakeholder relations Looking ahead 10 Operational Sustainable excellence Developmental Outcomes Financial performance review 11 PERFORMANCE COMMENTARY 12 Human capital management Financial sustainability 12 13 Looking ahead Sustainable Developmental Outcomes (SDOs) Capacity creation and maintenance 13 – Export coal 13 Employment Transformation 13 – Export iron ore Skills Health – General freight 13 development and safety – Locomotives 14 Industrial Community capability building development – Wagons 14 14 Investment Environmental Looking ahead leveraged stewardship Market segment competitiveness 15 Regional Looking ahead 15 integration Human capital 16 Organisational readiness 17 The Capitals – High-performance culture and environment 17 Financial capital Human capital – Skills development 17 18 – Health and safety Social and Manufactured capital Looking ahead 18 relationship capital Governance and ethics 19 Intellectual capital Natural capital FREIGHT RAIL’S TOP 5 RISKS AND KEY MITIGATING ACTIVITIES 19 OPPORTUNITIES 20 Performance Key ABBREVIATIONS AND ACRONYMS 21 Improvement on prior Target achieved year performance CORPORATE INFORMATION 22 Decline on prior year Target partially performance achieved Equivalent performance Target not achieved to prior year Material clusters MDS strategic thrusts Build social trust through ethical leadership and corporate citizenship A Unlock organisational value by attracting talent, fostering innovation and building unity Ensure long-term financial stability in a tough economy A Ensure customer-centricity and build partnerships for sustainable growth Promote transformation and growth in the wider South African economy TRANSNET Freight Rail 2017 1 FREIGHT RAIL Highlights Concerted efforts by Freight The ‘general freight’ locomotive A total of 362 Employer of Choice Rail to identify and transport fleet modernisation plan for sector-specific training accreditation was all available rail cargo 1 064 new locomotives saw the interventions were awarded for the second resulted in tonnage growth of commissioning of 165 new conducted against a consecutive year, 2,3% from the prior year, locomotives (80 Electric and target of 290, which is showing excellent against overall economic 85 Diesel) into the rail system, 24,8% higher than compliance to key Human growth of 0,7%. resulting in locomotive efficiency projected. Capital processes. improvements. Tonnage growth 24,8% higher Employer 165 new locomotives of 2,3% of Choice The 4,9% growth of general freight evidences the successful implementation The TFR Legal, Governance, of the Road-to-Rail strategy. General Freight commodities contributing to this growth Compliance & Fraud Risk included: Management Department was recognised as a Top • The Iron Ore and Manganese business responding spectacularly to a recovery in the 500 In-house Legal Export Manganese market by exceeding budget by 81%, resulted in growth of 31% Department in the GC year on year Powerlist Africa Teams 1 • The Mineral Mining and Chrome (MMC) business unit grew 6,3% year on year, 2016 Legal 500 Series . exceeding projections by 2,1% • The Container and Automotive business performed well in the Intermodal Wholesale Top 500 sector, exceeding budget by 11,06% and reflecting growth of 24,3% year on year • Cross-border rail volumes improved 24% year on year (8 mt 2017 vs 6,4 mt 2016). 1 The GC Powerlist Legal 500Series is an organisation analysing the capabilities of law firms across the world. The Legal 500, turning its attention to the in-house function, and recognising corporate counsel who are driving the legal business forward. The latest edition is the GC Powerlist: Africa, which identifies an array of the most influential and innovative in-house counsel working in the region. 2 TRANSNET Freight Rail 2017 Business overview Transnet Freight Rail (TFR), Transnet’s largest operating division, is a world-class freight rail company specialising in heavy haul and general freight transportation. With over 27 600 employees throughout the country, the operating division maintains an extensive 20 953 Route Km (30 400 Track Km) rail network across South Africa. TFR rail infrastructure represents approximately 80% of • Agriculture and Bulk Liquids; Africa’s total rail infrastructure and connects with • Coal; neighbouring sub-Saharan rail networks. The Division has • Containers and Automotive Business; a strong and proud reputation for technological • Iron Ore and Manganese; leadership both beyond Africa as well as within Africa – • Steel and Cement; and where it is active in ten countries • Mineral Mining and Chrome. TFR is a profitable and sustainable freight railway TFRs strategy aims to ensure appropriate positioning of business, which contributes to the competitiveness of the business in relation to customer requirements and the South African economy. The Division provides rail national objectives, with the key objective of moving rail services to customers in key market segments through addressable commodities back to rail. six business units: TRANSNET Freight Rail 2017 3 Freight Rail network Musina Core network Louis Trichardt MOZAMBIQUE Figure 1 Groenbult Closed lines Lephalale Polokwane Phalaborwa Vaalwater Zebediela Middelwit Steelpoort BOTSWANA Modimolle Marble Hall Nelspruit Komatipoort Witbank Mafikeng Kaapmuiden Vermaas SWAZILAND Ermelo Ottosdal Vryburg Vereeniging NAMIBIA Hotazel Klerksdorp Pudimoe Makwassie Vrede Kroonstad Vryheid Nakop Sishen Warden Veertien Strome Upington Virginia Harrismith Bethlehem Kimberley Ladysmith Kakamas Douglas Bloemfontein Richards Bay Koffiefontein Belmont LESOTHO Pietermaritzburg Durban Springfontein Franklin Harding Aliwal North Sakrivier De Aar Port Shepstone Maclear Noupoort Calvinia Rosmead Hutchinson Umtata Hofmeyer Queenstown Beaufort West Porterville Cookhouse Saldanha Klipplaat Blaney East London Prince Alfred Hamlet Alicedale Oudtshoorn Worcester Port Alfred Cape Town Ngqura Knysna Port Elizabeth Lifted lines Mosselbaai Branch lines Rail Infrastructure 30 400 km of track 20 953 route km Core network: 12 801 route km Network electrification 50kV AC (861km) 25 kV AC (2 309km) 3kV DC (4 935km) Diesel (11 974km) Axle loading Main lines at 20t/axle Ore line at 30t/axle Coal line at 26t/axle 4 TRANSNET Freight Rail 2017 Regulatory environment Ongoing developments in the areas of transport economic regulation and rail policy could result in substantive changes for the South African transport industry. The release of the Draft White Paper on National Rail Transport Policy by the Department of Transport (DoT), is imminent. Transnet anticipates a Draft White Paper that balances the interests of all major role-players and stakeholders and also sets the railway sector firmly back on a path to being the backbone of the South African transport system. Expectations are that the new rail policy will dovetail with Transnet’s strategy and that the policy will reinforce greater investment in the rail sector. The DoT is also progressing with a Draft Bill on the These new developments in legislation can be interpreted regulation of transport. The content and substance of the as having a strategic impact on the way the division current Draft Bill on the Regulation of Transport Bill – the performs its functions. TFR will however continue to Single Transport Economic Regulator Bill (STER) contains ensure that the consolidation of the aligned policy several challenging components for Transnet. positions achieved finds concrete expression and Engagement with the DoT, Department of Public influence in the development of the National Rail Policy Enterprises (DPE) and other relevant departments and White Paper. structures to address concerns is ongoing. TFR hopes that the outcome of the engagement will be a practical TFR we will also continue working towards the completion approach to regulation of the transport sector, which will of the mandate, to develop an appropriate framework for take into account history, current realities and the economic regulation of railways; of which the process is long-term competitiveness of the transport system, and aligned with the Rail Policy process. Ongoing alignment in particular the rail sub-sector within the transport system. with the DPE and DOT to mitigate potential risks and contribute to rail policy and regulatory frameworks that Additionally, several policy reviews have been initiated by balance the interest of Government, the rail industry, rail the DoT. Transnet is actively engaging in all of these operators, network owners and customers. processes and as critical transport policies are updated and reviewed, Transnet will advocate for consistency, alignment and policy coherence. TRANSNET Freight Rail 2017 5 Performance context The strategic advantage of rail lies in the movement of heavy haul, bulk and unitised commodities over long distances, where flow densities provide economies of scale, thereby lowering unit costs. Transporting rail-friendly freight on rail rather than road reduces logistics costs and impacts positively on the road network, while reducing transport sector carbon