Disruptions in South Africa’s Rail Network Supply Chain

Transnet, South Africa’s state-owned logistics company, has experienced significant operational disruptions in recent years; from senior leaders plundering the businesses resources during the State Capture years under former President Jacob Zuma (2009-2018) to a significant cyber-attack in July 2021 that led to several ports to declare force majeure. 

One standout operational impediment has been the ongoing theft of rail infrastructure across the length and breadth of the country. Hundreds of kilometers of copper line, track, and other general infrastructure have been stolen, costing the state billions in potential revenue. While the government and Transnet have promised to address the challenge, the issue persists and is likely to continue to be a significant obstacle in the years ahead.

What is Transnet?

The government owns Transnet. The business is divided into several divisions, the largest of which is freight rail. The rail sector is further divided into corridors, including the North Corridor, Ore Corridor, North-East Corridor, Cape Corridor, Natal Corridor (Container Corridor), and Central Corridor. The North Corridor is the most important, which carries some 40 percent of the total tonnage of the network. Overall, Transnet is responsible for one of the most extensive rail networks in the world and the largest on the continent, managing some 31000 km (19,200 miles) of track rail in addition to 2696 bridges and 198 tunnels.

The freight rail business is responsible for transporting a wide range of goods and materials, including iron ore, coal, agricultural goods, and general commodities for export and domestic and regional (South African Development Community or SADC region) use. In 2021, Transnet Freight Rail transported some 183 million tonnes worth of cargo, down 13.66 percent over 2020, with general freight showing the most significant decrease (21 percent).

Transnet's Primary Rail Corridors

Theft of Infrastructure

In 2021, Transnet reported 600 cable theft incidents a month that impacted over 1,100 scheduled services. The trend has continued in 2022. Through Feb. 11, hundreds of kilometers of line have been stolen. In two corridor networks (Cape and Natal/Container), over 60km each has been stolen. 

The impact of cable theft is one of several risks highlighted by Transnet in their 2021 review but remains arguably the most critical to address. The cost to Transnet and ultimately the taxpayer amounts to around ZAR 1 million (USD 66.280 as of Feb. 11) to replace one km of cable. The failure of the government to address the issue has also led to significant reputational risk, with some customers reportedly seeking alternative delivery methods, likely road. Should these be pursued in any meaningful manner, the knock-on impact to the road network would be considerable in terms of additional traffic load and damage to surfaces. The taxpayer would ultimately bear this cost. 

Delays and the suspension of services due to cable theft and replacement time also impact the bottom line. Billions of rands in potential revenue, particularly coal exports, have been lost. For customers ferrying agricultural goods, spoilage remains a priority concern. Goods lying idle in storage units or on delayed trains will attract a cost.   These issues, in turn, have another more significant knock-on impact. Investor confidence is rocked and much-needed investment is lost as other avenues are sought.

Culprits  

Security forces have arrested dozens of people in connection with cable theft; however, the identity of all but a few of these people remains unclear, and those that are identified range from Transnet employees to ordinary criminals. The scale of the issue suggests some coordination; however, no such evidence exists. Crime intelligence remains incredibly weak in South Africa – this was highlighted by the anarchy during the July 2021 riots and detailed by the government’s follow-up report. In addition, communication from the security services and courts regarding the identity of the thieves is limited.

It is likely that criminal syndicates, which operate in all major urban centers and provinces, are involved. The involvement could include either orchestrating the theft or facilitating the trade of stolen copper cables or other infrastructure-related materials. It is also unlikely that criminals are acting alone. Transnet figures have been implicated in acts of corruption in the past. South Africa also has a significant state corruption problem. Therefore, it takes no great leap of the imagination to consider that efforts to reign in the scale of theft may be due to persons operating within state structures.

Response to Security issues

President Cyril Ramaphosa has identified Transnet as one of its key priorities to address the country’s economic failings. The company featured prominently during his Feb. 10 State of the Nation Address. Some of the measures that have already been taken include creating a Rapid Response Center to respond to incidents.

Transnet has also engaged its customers to collaborate in countermeasures; some of its clients have reportedly requested that their private security forces patrol parts of the rail network to prevent, among other things, cable theft. Officials at the state owned enterprise (SOE) are also working with the Hawks, National Intelligence, and the South Africa Police Service; in 2021, some 500 arrests were made.

Finally, the government has indicated that some slots will be earmarked for third parties along the Container Corridor (Durban to Gauteng) from April 2022. This is likely aimed at improving efficiencies and leaning on private enterprise to secure lines. 

Conclusion

Transnet will continue to face hurdles to reaching its full potential and stabilizing the rail supply chain through 2022 and likely in the following years. Severe crime levels in South Africa show no sign of abating, and efforts to combat organized crime and the drivers of crime, including massive unemployment and poverty, are currently limited due to various disabling factors, chief among them, corruption.

Customers that rely on the freight rail sector will likely seek to implement their own security measures. Private security is a massive industry in South Africa, employing over 500,000 people. Transnet will also likely seek to leverage private sector resources to safeguard areas at critical risk of theft.

For companies using the rail sector, alternatives will continue to be sought, including road. However, as the July 2021 riots highlighted, even road travel carries a risk, notably from crime and looting during periods of unrest. Businesses will continue to rely on private security and will need to factor in the cost of security and potential loss. This cost will, ultimately, be carried by the consumer and taxpayer.

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