Freight Rail 2019 - Transnet
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Freight Rail 2019
Transnet Freight Rail 2019
1
Highlights
The 2019 financial year was turbulent for Transnet Freight Rail
(Freight Rail or TFR) as external and internal factors such as
sluggish economic growth, unstable market conditions as well as
operational and governance challenges impacted performance.
These factors resulted in unsatisfactory performance as reflected
by a 4,9% decline in volumes to 215,1 mt (2018: 226,3 mt). In spite
of the challenges experienced by TFR, growth in several general
freight businesses and increased rail capacity was accomplished,
reflecting the drive to grow the general freight business in key
sectors such as containers, automotive, agriculture and traditional
mining. For instance:
• The Cato Ridge facility handled more TEUs in 2019 than in the
prior year (15 049 TEUs vs 761 TEUs in 2018). These export
containers are destined for the Port of Durban – contributing to
the decongestion of the Bayhead Precinct and gate congestion
at the Port of Durban. The equivalent road truck trips of the
additional TEUs handled is comparable to 7 525 trips, based on
an average of two TEUs per truck.
• The Newcon terminal in Newcastle handled an additional
206 568 tonnes compared to prior year (13 830 tonnes vs
220 399 tonnes).
• Toyota Export Shuttle volumes increased from the plant to the
Port of Durban (33 082 units vs 26 139 units in 2018), also
contributing to decongesting the City of Durban by reducing
road truck activity.
• Refrigerated cargo (reefer traffic) railed from Polokwane to the
Port of Durban increased by 7% year on year to 3 994 TEUs
(2018: 3 722 TEUs).
• Timber tonnages improved by 3,44% to 2,39 mt (2018: 2,31 mt).
• Manganese volumes grew by 2,19% to 14 mt (2018: 13,7 mt)
exceeding the budget by 2,24%. This was the result of the
implementation of an innovative rail solution that successfully
tested and operationalised a 375-wagon manganese train. The
production train has the most number of wagons in the world
and surpasses our own 342-wagon iron ore export train.
• Chrome volumes grew by 4,6% to 7,1 mt (2018: 6,7 mt).
• Granite recorded growth of 8,2% to 48 957 tonnes (2018:
45 270 tonnes).
Freight Rail is consistent in its efforts to collaborate with and
partner industry players so as to encourage participation as well
as the creation of cost effective and innovative supply chain
solutions for businesses across South African and the sub-Saharan
region. During the 2019 financial year, Freight Rail achieved the
following awards:
• Two awards from the 11th Transport Africa Awards – recognising
blue chip mark of success for the African transport and
infrastructure sector:
–– Freight Company of the Year for Ceres Rail Development; and
–– African Transport Operator of the Year for Postmasburg
Manganese Common User Facility.
• Three awards from the 30th Logistics Achiever Awards –
recognising excellence and innovation in logistics and supply
chain management that create market advantages for today and
the future:
–– Platinum Award for Maputo Corridor Optimisation. The
strategy for the Maputo Corridor is to grow volumes in excess
of 21 mt per annum; over the years, a significant growth of
approximately 24% has been realised;
–– Gold Award for Afrimat Iron Ore Loading Facility. Freight
Rail in conjunction Afrimat commenced with the development
of an iron ore load out facility in Sishen on the Lyleveld line to
be used for loading ballast for the iron ore line. Benefits
realised from the project include volume growth and job
creation for approximately 18 people from the Sishen local
community; and
Transnet Freight Rail 2019
2
–– Bronze Award for Mandlazini Chrome Hub. The project
created an off-site pre-assembly area and staging area away
from the port to address congestion challenges and increase
overall capacity for Transnet to export more chrome on rail
and to service future global demand. The site was
commissioned in 2017; it railed an impressive 39 150 tonnes
by the end of March 2018. The 12 300 tonnes rail growth
of chrome exports equates to 1 151 fewer truck loads on
the road.
• In June 2018, Transnet scooped the Premier Transport Project of
the Year Award for the Saldanha Manganese off-loading facility
that added additional stockpile capacity of 100 000 tonnes per
annum at the Salkor Yard – adjacent to the Port of Saldanha.
The facility became operational toward the end of the 2019
financial year.
• For the fourth consecutive year, Freight Rail was certified as a
Top Employer by the Top Employer Institute, a global authority
on recognising excellence in people practices.
• The Blue Train was the winner of the most luxurious train in
Africa for the tenth consecutive year; and the three-time winner
of the world’s most luxurious train at the World Travel Awards.
Business overview
Freight Rail is the largest Operating Division of Transnet. The
Division’s primary business is the operation of rail services for the
transportation of commodities for export, regional and domestic
markets. Freight Rail operates world-class heavy haul coal and iron
ore export lines and is developing the manganese export corridor
to heavy haul standards. The Division also transports a broad range
of bulk general freight commodities and containerised freight. TFR
maintains a complex rail network of approximately 31 000 track
kilometres (20 911 route kilometres) over which commodities
are railed.
The diverse rail network comprises ~1 500 km of heavy haul lines.
The network also includes 3 928 km of branch lines that serve as
feeders to main lines. The network and rail service provide
strategic links between ports, terminals and production hubs,
providing connectivity with the railways of the Southern African
Development Community (SADC) to support regional integration.
Infrastructure connectivity, coupled with close cooperation
between Operating Divisions and collaboration with key
customers, enables the delivery of freight volumes across
value chains.
The Division provides the network for long-distance passenger rail
services as well as haulage capacity for private passenger
services. Freight Rail continues to operate the prestigious
award-winning luxury Blue Train.
Freight Rail is conducting preparatory groundwork to embark on
Transnet’s new strategic direction. We are in the early stages of
formulating Transnet’s new partnership-driven growth and
diversification strategy. Transnet’s strategic transition is
progressing in phases, with the organisation principally concerned
with preserving, repairing and strengthening its operational core
by optimising and restoring its essential and vital operational
capability. This initial phase of our strategic unfolding is being
methodically executed over the next nine to 12 months, as we
begin to define our medium- to longer-term strategic aspirations.
The new strategy will be accompanied by a revitalised operating
model which will bridge strategy and organisational design and will
fundamentally transform the current structure and reconfigure the
business portfolio.
Transnet Freight Rail 2019
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Where we operate
The network extends across South Africa and comprises the heavy haul coal and iron ore export lines, key national corridors over which general
freight traffic flows and branch lines.
Musina
Louis Trichardt
MOZAMBIQUE
Lephalale Groenbult
Phalaborwa
Polokwane
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 Key
Kimberley Ladysmith
Kakamas
Bloemfontein Richards Bay
Douglas
Core network
Belmont
Koffiefontein
LESOTHO
Pietermaritzburg
Durban Closed lines
Springfontein Franklin
Harding
De Aar Aliwal North
Sakrivier
Port Shepstone Lifted lines
Maclear
Noupoort
Calvinia Rosmead
Hutchinson Umtata Branch lines
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
Mosselbaai
Figure 1: Freight Rail network
Regulatory environment
Freight Rail is accountable to all stakeholders under the applicable regulatory requirements and is committed to high standards of integrity. In
view of the importance of complying with the ever-increasing regulatory universe, and the increased emphasis placed on the supervision
thereof, Freight Rail continues to strive for effective management of regulatory risks.
A Draft White Paper on National Rail Policy has been released by the Department of Transport (DOT) and is currently under discussion. Several
policy proposals in the Draft White Paper potentially pose significant risks to Freight Rail. Further engagement with the DOT will be sought to
influence policy direction to mitigate risks.
Freight Rail is proactively responding to the envisaged Government policy change on separation of network infrastructure and operations, as
well as the introduction of fair and competitive access to private train operators onto the network. These will be supported by the new strategic
direction and operating model of the Organisation.
The fifth Draft Economic Regulation of Transport Bill is being considered by Government. It contains a number of postulations and provisions
that pose risks to Freight Rail and Transnet SOC Ltd. Freight Rail continues to engage the DOT and Department of Public Enterprises on the
Draft Bill to effect changes to the provisions of the Bill to minimise negative impacts on Transnet, while improving fair and balanced regulation
of the South African transport sector.
Transnet Freight Rail 2019
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Strategic context
Freight Rail contributes to Transnet’s strategic objectives as contained in the Statement of Strategic Intent summarised in the table below:
Strategic objective Contribution to strategic objective
Reduce the total cost of logistics as a percentage • Improving the reliability and predictability of rail services through continuous
of transportable GDP improvements in service design, turnaround times and on-time departures and
arrivals
• Collaborating with industry to encourage participation in, and the creation of,
cost-effective logistics solutions across supply chains
Effect and accelerate modal shift by maximising • Continue to develop and implement road-to-rail programmes that enable access to
the role of rail in the national transport task rail for general freight volume growth
• Initiative to grow container market share
• Initiatives to grow automotive volumes
Leverage the private sector to provide both • Continue with the implementation of approved private sector participation
infrastructure and operations where required projects:
–– Tambo Springs Intermodal Terminal
–– Botswana heavy-haul railway line
–– Swaziland Rail Link
Integrate South Africa with the region and the • Collaborate with corridor joint operating centres to integrate service designs, plans
rest of the world and schedules with cross-border railway partners, terminal operators and ports
(Mozambique, Swaziland, Namibia, Botswana and Zimbabwe)
Optimise the social and economic impact of all • Improve capabilities and capacity building through learning and development for the
interventions undertaken by the SOC in the local industry, SADC and other African countries
achievement of these objectives • Create forums to manage communities around railway corridors and improve their
lives by offering educational assistance, employment and career exhibitions
• Continue with the corporate social investment initiatives, such as Phelophepa
Healthcare Trains to improve the lives of the communities in which the organisation
operates
• Continuous engagement with labour organisations
Operational performance context
Freight Rail is entrenching the Scheduled Railway philosophy to
improve rail operations. This encompasses operating trains with a
high degree of schedule adherence. The aim is to significantly
improve operational efficiency and customer service delivery. The
2019 operational context was difficult and characterised by
several challenges in the business environment that impacted
demand certainty, planning and the mix of resources required for
the efficient execution of trains, including the following:
• Subdued economic conditions impacted negatively on customer
demand and thus affected planning and resourcing.
• The US-China trade war created uncertainty in the market and
led to changes in trade patterns.
• Socio-economic challenges (such as underemployment in the
country and service delivery protests) spilled over into rail
operations.
• Local coal demand declined which negatively impacted the
budgeted volumes.
• The increased number of thefts, vandalism, sabotage and social
unrest incidents affected the availability for the network and
the quality of service to customers.
• Operational and governance challenges, such as procurement
processes, had a ripple effect on operations. Although remedial
actions and internal controls have been developed, challenges
have affected volume performance negatively due to lengthy
time horizons to implement corrective actions.
Transnet Freight Rail 2019
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Overview of key performance indicators
2017 2018 2019 2019 2020
Key performance area and indicator Unit of measure Actual Actual Target Actual Target
Financial sustainability
EBITDA margin % 44,1 46,8 47,3 44,8 47,5
Operating profit margin % 22,8 27,6 29,3 24,8 28,8
Gearing % 34,6 52,2 51,5 56,8 51,9
Net debt to EBITDA times 4,0 3,4 3,3 3,8 3,3
Return on total average assets – excluding
capital work-in-progress (CWIP) % 5,8 7,8 8,9 6,6 9,0
Asset turnover – excluding CWIP times 0,27 0,28 0,30 0,27 0,31
Cash interest cover times 2,7 2,9 2,8 2,5 2,8
Capacity creation and maintenance
Capital expenditure R million 15 746 17 598 16 387 14 818 20 358
Operational excellence
Asset utilisation
General freight business Gtkm/Ntkm 1,62 1,40 1,39 1,40 1,41
Export coal Gtkm/Ntkm 1,55 1,26 1,26 1,26 1,25
Export iron ore Gtkm/Ntkm 1,38 1,20 1,20 1,20 1,20
Loco-utilisation#
GTK’000/loco/
General freight business month 5 509 4 917 4 327 4 551 4 227
GTK’000/loco/
Export coal month 22 983 18 547 17 793 11 147 17 232
GTK’000/loco/
Export iron ore month 57 809 40 458 54 594 34 122 54 576
Cycle time
Export coal hours 63 62,6 58,0 64,2 63,8
Iron ore hours 93 86,0 68,0 91,7 87,7
Export manganese hours 162 154,9 120,0 151,3 120,0
Wagon turnaround time
General freight business days 10,1 10,0 8,5 9,6 7,9
Density
General freight GTK/Routekm 5,50 5,15 5,86 4,87 5,74
Natcor GTK/Routekm 6,33 9,80 11,11 8,90 10,14
Capecor GTK/Routekm 3,77 5,97 6,09 5,77 6,93
Southcor GTK/Routekm 3,32 5,75 5,85 5,97 6,67
Service delivery
On-time departure (average deviation from
scheduled times)
General freight business minutes (198) (182,1) 152 (35) 148
Export coal minutes (40) (58,6) 45 (58) 55
Export iron ore minutes (212) (205,4) 60 (47) 40
On-time arrivals (average deviation from
scheduled times)
General freight business minutes (62) (59,94) 180 96 165
Export coal minutes (83) (137,27) 90 17 185
Export iron ore minutes (191,76) (141,67) 190,0 9 80
Market segment competitiveness
Volume and revenue growth
Commodity classification
General freight business mt 88,1 90,77 104,2 84,69 96,6
Export coal mt 73,8 77,02 77,0 72,01 77,4
Export iron ore mt 57,2 58,52 60,0 58,43 60,0
Total volumes mt 219,1 226,3 241,2 215,1 234,0
Tariffs
Year-on-year weighted average R/tonne change
– General freight business % 1,19 9,38 5,42 (6,92) 5,06
1
Locomotive utilisation: A refinement of locomotive utilisation measures is underway during the 2019/20 financial year to incorporate the
deployment and optimisation of new locomotives to general freight as well as export coal and iron ore line traffic flows.
Transnet Freight Rail 2019
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2017 2018 2019 2019 2020
Key performance area and indicator Unit of measure Actual Actual Target Actual Target
Sustainable developmental outcomes
Human capital
Employment equity % 87 87,9 88,0 88,8 90,0
% of personnel
Training spend cost 1,9 2,1 3,08 2,97 2,01
Employee turnover % 4,9 5,0 5,0 3,7 5,0
Employee headcount permanent 27 679 26 694 28 673 26 312 28 673
Risk, safety and health
Cost of risk % of revenue 5,8 5,8 5,5 6,2 6,2
DIFR rate 0,8 0,91 1,0 0,90 0,88
Number of safety incidents number 372 386 259 379 228
Number of derailments – mainline number 81 80 42 65 40
Number of derailments – shunting number 159 158 139 153 122
Financial performance review
Year ended Year ended
31 March 31 March
2019 2018 %
Salient features R million R million change
Revenue 43 582 43 709 (0,3)
– General freight 23 175 23 586 (1,7)
– Export coal 11 935 12 022 (0,7)
– Export iron ore 6 686 6 314 5,9
– Other 1 786 1 788 (0,0)
Operating expenses (24 076) (23 236) 3.,6
– Energy costs (5 434) (4 991) 8,9
– Maintenance (1 856) (2 135) (13,1)
– Materials (565) (500) 13,0
– Personnel costs (12 826) (12 573) 2,0
– Other (3 395) (3 037) 11,8
Profit from operations before depreciation, derecognition,
amortisation and items listed below (EBITDA) 19 506 20 473 4,7
Depreciation, derecognition and amortisation (8 685) (8 402) 3,4
Profit from operations before items listed below 10 821 12 071 (10,4)
Impairments and fair value adjustments (1 154) (676) 70,7
Net finance costs (5 782) (5 550) 4,2
Profit before taxation 3 885 5 861 (33,7)
Total assets (excluding CWIP) R million 155 463 161 088 (3,5)
Profitability measures
EBITDA margin1 % 44,8 46,8 (2,0)
Operating margin2 % 24,8 27,6 2,8
Return on average total assets (excluding CWIP)3 % 6,6 7,8 (1,2)
Asset turnover (excluding CWIP)4 times 0,27 0,28 (3,6)
Capital investments5 R million 14 818 17 598 (15,8)
Employees
Number of employees (permanent) number 26 312 26 694 (1,4)
Revenue per employee R million 1,66 1,64 1,2
1
EBITDA expressed as a percentage of revenue.
2
Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of revenue.
3
Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of average total assets,
excluding capital work in progress.
4
Revenue divided by average total assets, excluding capital work in progress.
5
Actual capital expenditure (replacement plus expansion), excluding borrowing costs and including capitalised finance leases.
Transnet Freight Rail 2019
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Performance commentary Cash interest cover
Cash interest cover decreased to 2,4 times (2018: 2,9 times). The
Financial sustainability reduction in the cash interest cover ratio was mainly due to a
decrease in cash generated from operations after working capital
Revenue
changes, which was further exacerbated by a 4,5% increase in
Revenue for the period under review decreased by 0,3% to finance costs.
R43 582 million (2018: R43 709 million). This decline was mainly
driven by a 4,9% decrease in volumes, resulting in an unfavourable Revenue per employee
R2,1 billion volume variance. The variance was partially offset by
an increase in average Rand/tonne (R196,55 in 2019 vs R186,75 in Revenue per employee improved by 1,2% to R1,66 million (2018:
2018), the net outcome of which was a favourable R1,9 billion R1,64 million). This measure improved despite a year-on-year
price and mix variance. The average increase in Rand/tonne of revenue decrease of 0,3%. The improvement was chiefly due to a
5,2% was slightly higher than the average Production Price Index slight reduction in headcount from 26 694 in the 2018 financial
(averaged 4,56% over the reporting period). The increase in the year to 26 312 for the year under review.
average Rand/tonne performance indicator is mainly attributable
to the prioritisation of high yield commodities in the mix. Looking ahead
Operating expenses • Capital investment will be optimised across the system
(locomotives, wagons, rail network and other safety and
Operating expenses increased by 3,6% to R24 076 million compliance-related projects) and based on affordability and
(2018: R23 236 million). Austerity measures fuelled significant achievement of key financial ratios.
cost savings which were realised mainly in administration and • Improvement in general freight business volume performance is
overheads costs. Cost savings mitigated the impact of increases in expected with the implementation of road-to-rail initiatives and
certain operating expense items such as personnel, materials and volume recovery plans.
fuel costs – which increased above inflation levels. Fuel costs • Implementation of initiatives to improve the operating ratio.
increased by 18% from R2 037 million in 2018 to R2 408 million in
• Freight Rail will continue with the drive to optimise operating
the current year, mainly as a result of unbudgeted price escalations.
expenses.
The cost increase was further exacerbated by a Road Accident
Fund rebate rejection of R189 million relating to claims dating back
to the 2013 financial year that were disallowed by SARS. Capacity creation
EBITDA and operating margins Freight Rail invested R14 818 million in capital in the year under
review against a budget of R16 387 million. The capital
Driven by the decline in revenue, EBITDA margin decreased by expenditure budget allocation for infrastructure and locomotives
2% to 44,8% (2018: 46,8%). Also, operating margins decreased was not fully deployed during the financial year. Underspending on
by 2,8% to 24,8% (2018: 27,6%), which is attributable to a 3,4% infrastructure was largely due to delays in procurement processes.
increase in depreciation charges. Stringent cost-saving measures However, underspending on locomotives was as a result of slower
aimed at reducing discretionary costs mitigated the negative than anticipated delivery of new locomotives due to a skills
impact of lower revenue on the budgeted profitability margins. shortage of locomotive assembling technicians in the Durban
Bayhead plan.
Return on total average assets (excluding CWIP)
The breakdown of the investment was as follows:
Return on total average assets decreased to 6,6% (2018: 7,8%).
The marginal decline in this measure is mainly attributable to a Budget Actual
decrease in operating profit. The decline was slightly offset by the FY2018/19 FY2018/19
impact of a decrease in the asset base following the devaluation of Category R million R million
infrastructure assets.
Infrastructure 4 993 3 950
Gearing Locomotives 7 484 5 260
Financial gearing declined to 56,8% (2018: 52,2%). The deterioration Wagons 2 969 4 385
in the metric between the two comparative periods is attributable to
changes in Freight Rail’s capital structure after a series of asset Other 941 1 223
devaluations during the 2019 financial year, the result of which was a Total 16 387 14 818
decrease in reserves.
Total investment in infrastructure for the year amounted to
Asset turnover (excluding CWIP) R3 950 million, of which:
Asset turnover declined to 0,27 times (2018: 0,28 times) on the • R845 million was allocated to the export coal line;
back of a decrease in revenue. The impact of flat revenue growth • R327 million was invested in fixed infrastructure for the export
was slightly offset by a 3,9% decrease in total assets (excluding iron ore corridor; and
CWIP). • R2 778 million was invested in the general freight business’s
compliance and enabling works.
Net debt to EBITDA
Ongoing maintenance of rolling stock and railway infrastructure is
Net debt to EBITDA declined to 3,8 times (2018: 3,4 times) required to maintain assets at an acceptable railway service
as a result of an increase in total long-term borrowings to standard in order to achieve the required levels of reliability,
R71 958 million (2018: R69 486 million) on the back of a decrease safety and availability. During the year under review, Freight Rail
of 4,7% in EBITDA to R19 506 million (2018: R20 473 million). spent R8 054 million on capitalised maintenance (capex) as
depicted in the following table.
Transnet Freight Rail 2019
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Budget Additional Revised Actual
FY2018/19 budget budget FY2018/19
Category R million approved FY2018/19 R million
Infrastructure network 3 114 – 3 114 3 113
Locomotives 1 034 649 1 683 1 665
Wagons 1 934 1 365 3 299 3 276
Capitalised maintenance (locos, wagons and infrastructure) 6 082 2 014 8 096 8 054
An additional amount for capitalised rolling stock maintenance of Performance commentary
R2 014 million (R1 365 million for wagons and R649 million for
Operational performance for the year ended 31 March 2019 was
locomotives) was approved to support the achievement of volume
below expectations. Freight Rail railed a total of 215,1 mt in 2019
targets. This resulted in additional expenditure on rolling stock.
representing a decline of 4,9% on prior year (2018: 226,3 mt) and
a 10,1% shortfall against the projected budget of 241,2 mt.
Looking ahead
Export iron ore volumes marginally declined by 0,15% to 58,4 mt
• Continuation of capital programmes, including expanding
when compared to the prior year (2018: 58,5 mt) against a target
capacity on the coal export line to 81 mt, doubling the Overvaal
of 60 mt. The result was a shortfall of 2,6%. Export iron ore
Tunnel and upgrading Waterberg to sustain and create capacity.
volume performance was negatively affected by the Saldanha iron
• Completion of the 1 064 Locomotives Programme by ore line closure due to bridge damage by an abnormal height road
commissioning the remainder of the locomotives into service haulier, tippler challenges at the port and a high number of speed
by 2022. restrictions – intended to mitigate safety incidents on the line.
• Proceeding with the execution of the New-build Wagon
Programme. Export coal volumes declined by 6,5% to 72 mt railed (2018: 77
• Executing the Rail Network Maintenance Strategy to ensure mt) against a target of 77 mt. Export coal volume performance was
availability and reliability of infrastructure. negatively affected by a major incident on the Richards Bay coal
export line (an apparent act of sabotage); operational challenges
experienced by the mines; and Optimum Mine’s financial
Operational management difficulties which led to the non-materialisation of planned
The goal of Freight Rail operations management is to improve demand. The Turkish Lira crisis also had a negative impact on many
volume growth, increase general freight market share and achieve developing countries’ currencies including South Africa as it led to
regional integration. Several initiatives were implemented towards a slump in coal exports to Turkey.
these ends during the financial year including:
General freight tonnages reflected a decline of 6,7% to 84,69 mt
• Back-of-port facilities projects such as the Maputo Corridor
railed (2018: 90,77) against a target of 104,2 mt, translating into a
optimisation and Mandlanzini Chrome Hub.
shortfall of 18,7%. The shortfall was mainly due to domestic coal
• New business development and back-to-rail initiatives to improve – mainly Eskom coal volumes - which declined by 21% to 15 mt
general freight business. when compared to the prior year (2018: 19 mt); fuel and petroleum
• Initiatives to raise customer satisfaction levels, such as the digital volumes declining by 22% to 1,03 mt (2018: 1,3 mt); grain
transformation journey with customers, the introduction of the tonnages declining by 14% to 1,8 mt (2018: 2,1 mt). The mineral
Customer Engagement Room and strategic dialogue sessions mining portfolio reflected a decline of 10% to 11,5 mt (2018:
with key customers. 12,8mt) of which magnetite contributed significantly in declining
• Deployment of technologies to support the business attracting by 9,6% to 8 mt (2018: 8,9 mt). Factors contributing to sub-par
volumes and improving reliability and predictability, for instance, performance included:
applying radio distributed power technologies on the iron ore line • Eskom’s operational and financial challenges and prolonged
to operate a 342-wagon iron ore and 375-wagon manganese train contract negotiations contributing significantly to reduced
to optimise tonnage delivery. Distributed power implies that domestic coal demand
traction is distributed within the length of the train to facilitate • The US’s tariffs on steel imports from various countries
the reduction of in-train forces. This eliminates the failure of including South Africa, which caused panic in the markets as well
components and increases the fatigue life of the coupling system as reduced outputs for some commodities
and wagon. Communication between locos is done via radio.
• China’s stringent environmental policies coupled with reduced
• Execution of the wagon-build programme in accordance with steel production negatively impacted commodity demand,
market demand requirements. particularly low-grade steel input materials such as UG2, low
• Implementation of continuous improvement processes to improve grade magnetite and iron ore
efficiency and eliminate waste. • Changing climate conditions (such as extreme hot or cold
• Supporting regional volume growth through close collaboration weather conditions, floods, delayed or prolonged seasons) had a
with railways in neighbouring countries. negative impact on the agricultural sector. Adverse weather
• Initiatives to improve diversified revenue generation, including conditions severely impacted supply and demand patterns
value-added services such as freight clearing; last mile transport • Procurement process challenges experienced during the period
of goods and warehousing; optimising the property portfolio; and under review had a negative impact on the infrastructure
the sale of bandwidth within the telecoms infrastructure surplus maintenance plan. For example, the procurement of equipment
capacity. required for maintenance was delayed as a result of the need to
• Implementation of safety systems to enhance operations comply with the national drive for localisation – in an operational
reliability and achieve best practice safety standards. environment where suppliers of most equipment and machinery
Transnet Freight Rail 2019
9
are not available locally. Stringent measures and internal Locomotive utilisation
controls to curb procurement transgressions had unintended
consequences on the procurement process. These affected the General freight locomotive utilisation performance exceeded the
availability and reliability of the network infrastructure – some annual target, however, performance was lower than the prior year.
branch lines were closed due to unsafe conditions and affected Weaker performance was mainly due to lower volumes railed
the grain sector (2019: 84,69 mt against 2018: 90,77 mt) and concurrent
utilisation of new and less efficient old locomotives. The
• A high number of speed restrictions were imposed on several
simultaneous utilisation of locomotives is a common practice used
lines including the Natal Corridor as a precautionary measure to
to ensure that new locomotives are operating at acceptable
avoid safety-related incidents
reliability standards before retiring the older locomotives.
• Security incidents at Sentrarand led to the need for manual
interventions in train control, resulting in delayed cycle times Export coal locomotive utilisation was lower than the target for
and loss of volumes the year as well as lower than prior year performance. The desired
performance was not realised due to inefficiency of older
Freight Rail transported 724 619 TEUs in key corridors when locomotives, the arrival of new locomotives which are still being
compared to 740 000 TEUs transported in the prior year – commissioned and lower volumes railed on the line compared to
excluding Eskom containers. The number of cars transported was the prior year. The utilisation of export coal locomotives will
35 214 units (2018: 43 820 units) for imports and 95 193 units improve when the new locomotives are fully commissioned and the
(2018: 99 819 units) for exports. Efforts to further penetrate the older locomotives are retired or redeployed.
container and automotive markets are being pursued, with
particular emphasis on the optimisation of Natcor, the key corridor Export iron ore locomotive utilisation performance also declined
between the Port of Durban and the Reef. relative to the prior year and the annual target was not achieved.
As with general freight and export coal, the major reasons for the
Looking ahead deviation against target and reduction on prior year performance
• Implement the Natal Corridor optimisation programme. were the addition of locomotives to the fleet and concurrent
• Continued development and implementation of road-to-rail running of old and new locomotives.
programmes that enable general freight volume growth.
• Implement new business development projects and refine Cycle times and wagon turnaround times
operating models to cost-effectively accelerate road-to-rail The increase in the cycle time for export coal to 64,2 hours (2018:
shift in general freight market sectors. 62,6 hours) and non-achievement of the target (58,0 hours) was
• Continued development and deployment technologies to due to a deterioration in the quality of the network condition,
support the business in attracting volumes. resulting in speed restrictions placed on the line. In addition, with
• Improve operating models and practices for regional volume coal being sourced from mines located further away, the distance
increase. of the loading sites was longer than in the prior year. This
• Improve capabilities and capacity building through learning and increased the number of hours to complete the cycle.
development for Freight Rail, local industry, SADC and African
countries. The cycle time for the iron ore line of 91,7 hours in 2019 (2018:
86,0 hours) reflected an increase on the prior year, as well as
• Entrench a customer-centric culture and improve the customer
non-achievement of the 68,0 hours target for the year under
experience journey.
review. Several speed restrictions placed on the line and Saldanha
tippler challenges affected performance negatively.
Operational excellence Although the 120,0 hours target cycle time for export manganese
Freight Rail continuously strives for operational excellence, was not achieved, an improvement from 154,9 hours in the prior
however, most operational efficiency key performance indicators year to 151,3 in 2019 was realised. This can be attributed to the
were negatively impacted by lower than planned volume implementation of continuous improvement initiatives to reduce
performance and the reliability and availability of the network. A running times and to improve customer loading and port offloading
decline in the quality of the network condition was partly operations. Significant improvement is however required to reach
attributable to inadequate maintenance being implemented and the targets.
speed restrictions being placed on the lines. Money was spent on
hot spot areas because of increased theft, vandalism and sabotage General freight wagon turnaround time improved from 10 days in
(such as the replacement of overhead traction equipment wires 2018 to 9,6 days in 2019. The deployment of the new dual voltage
more than once due to criminal activities), which does not equate locomotives improved performance. However, the target of 8,5
to improving the total quality of the network. Several incidents of days was not achieved due to an increased number of speed
social unrest frustrated maintenance during shutdown or planned restrictions placed on the Natal Corridor and other core general
occupation. The following initiatives were implemented during the freight lines.
year under review to improve operational efficiencies:
• The National Command Centre and Satellite Operations Centres Density
were integrated into the Operations Control Centre thus
Density is a function of volumes transported over the rail route
consolidating operations command and control across the three
network. General freight volumes moved over the network were
geographical regions to improve planning efficiency, utilisation,
84,69 mt which was lower than the prior year (2018: 90,77 mt); as
productivity and density of rail channels.
a result, the general freight business, Natcor and Capecor density
• Continuous improvement processes were embedded to improve ratios were unfavourable when compared to the prior year.
efficiency and eliminate waste.
• The Productivity of Wagons Programme was rolled out to Southcor density improved relative to the prior year and target
increase velocity and reduce dwell times of wagons. was also achieved. Implementation of longer manganese trains
• Tactical volume plans for priority commodities were applied to increased manganese tonnages over the route and contributed to
tightly manage execution across the system and supply chains. greater density in this corridor.
• Digital applications to improve business process management
were effected.Transnet Freight Rail 2019
10
On-time departures (OTD) and arrivals (OTA) Number of engineers and technicians on the EEPs
The improvement of OTD performance indicates Freight Rail’s Actual Target Actual
commitment to adhere to the Scheduled Railway philosophy. The Training area 2018 2019 2019
application of this philosophy contributed to the development and
implementation of refined business rules during the period under Technicians in training 202 200 200
review. The discipline of the Scheduled Railway philosophy was
Engineers in training 100 60 60
also demonstrated with greater focus being placed on
consequence management for non-conformance to the Integrated Young professionals in
Train Plan and supporting business rules. training 192 170 174
OTA performance continues to be a challenge due to inherent
locomotive failures, interface challenges between the Passenger Youth employment and development strategy
Railway Agency of South Africa and Freight Rail in metropolitan
areas as well as the network condition (arising from the increased Employment/ Actual Target Actual
incidents of theft, vandalism and social unrest) leading to speed development 2018 2019 2019
restrictions being placed to mitigate safety incidents. Youth employed as % of 39,9 No target 37,4
total employees
Looking ahead
Youth developed as % of 42,1 44,6 40,7
Freight Rail will improve operational efficiencies by: all employees trained (14 926) (14 136)
• Reviewing and refining our operational philosophy and target
setting, thus ensuring divisional accountability with respect to
productivity and efficiency of all trains operated in a channel. Risk, health and safety
• Deploying tools and technology to enhance decision-making
Cost of risk
– such as a capacity and simulation planning tool as well as
execution monitoring and deviation management integrated The 2019 cost of risk was 6,2% compared to 5,8% achieved in the
tools. prior year. The target of 5,5% was not achieved. A Saldanha bridge
• Embedding continuous improvement processes to improve damage claim in November 2018 as well as a reduction in revenue
efficiency and eliminate waste. contributed to the increased cost of risk.
• Developing and deploying technologies to improve reliability and
predictability – such as equipment to detect and prevent DIFR
components failure before accidents occur, locomotive on-board Freight Rail achieved a DIFR of 0,90, which is lower than the global
computers, train definition units and an integrated asset industry benchmark of 1,00. The performance was within the
tracking management system. tolerance limit of 1,00 and a minor improvement from 0,91 in
• Implementing Road Safety Programme interventions. 2018.
• Implementing approved capital programmes to sustain and
create capacity. Number of safety incidents
The overall number of rail incidents decreased by 2% year on year.
There were 379 incidents in 2019 compared to 385 in 2018. The
Sustainable developmental outcomes tolerance limit of 259 was exceeded. Most incidents related to
Human capital (employment and transformation) Signal Passed at Danger (SPADS) and shunting derailments. Both
• Freight Rail ended the 2019 financial year with a permanent of these areas will receive closer focus in the year ahead. More
headcount of 26 312 employees against a target of 28 673. The serious level 1 and 2 type incidents reduced by 36% due to
below target headcount was due to lower than expected volume increased focus and management attention on safe operations.
performance which limited opportunities for external
employment. Number of mainline derailments
• Freight Rail sustained employment equity performance with The number of mainline derailments decreased from 80 in 2018 to
black employees representing 88,7% (target: 89%) of the total 65 in 2019. Although a 19% reduction was recorded, the number
employee base thus improving on the previous year’s of incidents exceeded the tolerance target of 42 for 2019.
performance (2018: 87,9%). Female employees represented
29% of the workforce and people with disabilities represented Number of shunting derailments
2,66% of the total employee base.
• Training spend in 2019, at 2,03% of personnel cost, was lower The number of shunting derailments increased from 140 in 2018
than the prior year (2018: 2,1%) and below the target of 3,08% to 153 for 2019. The number of derailments exceeded the
due to redirecting training to mission-critical jobs. tolerance limit of 139 that was set for the financial year.
• Employee turnover remained relatively constant at 3,73%, with A total of 113 occurrences were predominantly caused by unsafe
a slight decrease in the prior year’s actual of 4,98% due to a acts by employees and 58 shunting derailments were caused by
decrease in resignations. unsafe conditions. The Annual Safety Improvement Plan will be
reviewed to address inadequate behaviour challenges and
Skills development strengthen compliance through supervision. Efforts to improve
• Freight Rail continued to make excellent strides in skills safety performance will focus on filling vacancies and providing
development with engineers and technicians participating in adequate resources for maintenance. Ongoing level-crossing
engineering empowerment programmes (EEPs), and incidents are due to motor vehicle drivers not adhering to traffic
performance for youth employment and development. The signs at level crossings. To this end, Freight Rail will continue
progress of these programmes is summarised in the tables conducting awareness campaigns and implement the new Railway
below and reflects the contribution of Freight Rail to key Safety Regulator requirements. Technological interventions will
organisational and national objectives. also be considered to address this global challenge within the rail
industry.Transnet Freight Rail 2019
11
Outreach programme
Through the two Phelophepa Healthcare Trains, Freight Rail has
provided primary healthcare services to rural communities along
Transnet’s strategic rail corridors. During the financial year, Freight
Rail was able to touch the lives of more than 557 885 people in
eight of South Africa’s nine provinces (excluding Gauteng). Each
Phelophepa train has 19 coaches and offers services through
clinics for general health and education. Health services provided
by Phelophepa relate to dental care, optometry, psychology and
pharmacy. In addition, Phelophepa provides oncology services that
include education, screening, diagnosis, early management and
prevention of cancer. The education, screening and management of
common chronic conditions, such as diabetes and hypertension are
also included in the services provided.
The table below details the number of beneficiaries assisted and
health services provided through the Phelophepa outreach
programme:
Number of
beneficiaries
Category impacted
Total patients reached on board 132 019
Total patients reached – outreach 452 866
Prescriptions/scripts 55 468
Eye Clinic – total patients 46 712
Eye Clinic – spectacles dispensed 54 243
Dental Clinic – total patients 24 264
Health Clinic – total patients 66 913
Edu-Clinic – number of trained community members 6 591
Students for experiential learning 2 500
Local labour 4 830
Key risks and mitigating activities
Enterprise risk management practices ensure that Freight Rail identifies both strategic and operational risks, and implements measures to
manage these risks and their impacts while simultaneously identifying and harnessing inherent opportunities.
The top five risks were identified during the year under review with appropriate mitigating plans:
Key risks Risk description
Financial sustainability risk • Freight Rail’s inability to generate sufficient cash to fund a capital programme and meet
financial obligations
Operational efficiency and productivity • Inability to move available volume targets due to operational inefficiencies and productivity
risk challenges
Regulatory risk • Commercial pricing risk (Competition Act, No 89 of 1998)
Safety risk • Inability to provide and sustain a safe operational working environment for TFR employees
Energy supply risk • Uncertainty regarding the supply of energy by municipality/Eskom
Opportunities
• Assisting in reducing logistics costs by accelerating road-to-rail
initiatives, thus ensuring the long-term competitiveness of the
national freight system.
• Collaborating with supply chain partners and the private sector
to encourage participation and creation of cost-effective,
rail-based, end-to-end logistics solutions such as intermodal
terminals, common-user facilities and strategic hubs.
• Optimising the capital portfolio to assure rail capacity and
improve business performance through the execution of
operational efficiency initiatives, such as the Productivity of
Wagons Initiative, Operations Control Centre, Value Chain
Integration Programme, etc.
• Improvement of operating models and practices for regional
volume increase in cooperation with regional partners.Transnet Freight Rail 2019
12
Abbreviations
CWIP Capital work in progress
DIFR Disabling injury frequency rate
DOT Department of Transport
EBITDA Earnings before interest, tax, depreciation and amortisation
Gtkm Gross tonne kilometre
Mt Million tonnes
Ntkm Net tonne kilometre
SADC Southern African Development Community
SARS South African Revenue Service
SOC State-owned company
TEU Twenty-foot equivalent unitwww.transnet.net
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