Transnet plans a storm in every port
The South African economy may be at sea but Transnet – despite being on the receiving end of a recent credit ratings downgrade – appears not to have received the memo. The state-owned enterprise is forging ahead with its R32-billion expansion plan, a substantial portion of which is earmarked for South Africa’s ports.
Transnet’s Port Terminals (TPT), a division of Transnet, has allocated 71% of its R32-billion planned investment to grow South Africa’s port capacity, in anticipation of a significant increase in container volumes in coming years.
But industry experts say the growth forecast could be overly optimistic and that Transnet’s expectations may not materialise.
TPT owns and operates 16 cargo terminals across the seven ports in South Africa. Its market demand strategy seeks to build capacity before the need for it arises, premised on the expectation that the number of containers handled at South Africa ports will increase dramatically in coming years – growth that is likely to mimic the fivefold increase seen over the past 30 years.
Transnet this week reported that its profits for the financial year ending March 31 2014 had jumped 25% year on year, and exceeded R5-billion for the first time.
In the ports pipeline are major investments in Durban and Cape Town, as well as at Ngqura in the Coega Development Zone near Port Elizabeth. Also planned is the commissioning of new terminals to transport commodities such as manganese, in line with a projected rise in global demand.
‘State of the South Africa economy’
Meanwhile, automotive export programmes are continuing to expand, according to Transnet. An estimated 15 000 permanent jobs are expected to be created through expansion.
“One challenge is the state of the South Africa economy. If the growth is slow then it’s going to affect the volume,” said Siya Mhlaluka, Transnet’s general manager of port terminals in the Eastern Cape. “The market demand strategy is driven by volume growth: if the economy is not growing and the volume of goods and commodities does not grow as expected in the strategy, it is going to affect the way we invest.”
But Dave Watts, a maritime consultant for the South African Association of Freight Forwarders KwaZulu-Natal, said now may be the time to revisit container expectations and the resulting investment strategy.
“The basis of these capital developments is on forecasts of growth of 5% per year, which hasn’t happened,” he said.
“The 5% growth is not going to happen. Europeans forecast 40% growth by 2030 – that’s 2% a year – and the United States has cut back growth substantially.”
Mihalis Chasomeris, a maritime economist at the University of KwaZulu-Natal’s Graduate School of Business and Leadership, said South Africa’s growth rates are intrinsically connected to trade through the ports. “If economic growth accelerates, container rates may grow by approximately double. If economic growth decreases, like in the recession, you may see a container volume decline greater than the decline in GDP. For example, if we grow at 3%, there may be container growth at 5%,” he said.
Transnet’s ports expansion
Zeph Ndlovu, general Manager of KwaZulu-Natal operations at TPT, said the company’s challenges are indeed linked to global markets.
“I think the slowdown in European trading partners has affected us,” he said.
“However, nationally, all South Africa’s ports handled 4.6-million TEUs [20-foot equivalent units] of containers last year, with an aim to handle 4.8-million in 2014. We are looking at container volume year-on-year growth of 6% to 8%.”
The country appeared to have an import to export ratio of 55:45 at present, but said this was understandable, given the upheaval in the mining sector caused by the five-month strike on the western limb of the platinum belt, he said.
“The challenge at the moment is to avail capacity before demand rises. We are unlocking that ahead of time.”
Transnet had not been able to do so before: it had been limited by the scale of its balance sheet, which had been below R200-billion but it has now grown to R300-billion soliciting number on investor funds from markets, Ndlovu said.
African growth is a driver for Transnet’s ports expansion, which, the entity hopes, will make South Africa the gateway of choice in this regard.
And it is for this reason the infrastructure growth at the Ngqura transhipment hub has been continual.
Growth in the past year went from 635 000 TEUs to 740 000, which translates to about 23% growth, Mhlaluka said.
“Double-digit growth at this time is quite phenomenal, if you are growing at more than 20%.”
As much as 70% of this growth is transhipment growth, he said, a result of of South Africa’s geographical position. About 80% of transshipments go into the rest of Africa, he added.
Any transhipment hub needs to have strong rail capability, said Mhlaluka. “That’s the beauty of Transnet’s competitive capability of having ports and rail under one roof. Our customers always praise us for this unique capability as a one-stop shop.”
Mhlaluka said Ngqura’s growth confirmed it among the highest – having grown from 50 000 TEUs in five years to near 700 000, currently with an eye to expand to one million.
But Watts downplayed this as an achievement, referring to the port as a disaster.
’That’s 100% growth’
“I can have one container this year and two next year. That’s 100% growth,” he said.
“At the moment port users countrywide are paying for Ngqura, that is the way it works. Ngqura isn’t ring-fenced … so effectively national importers and exporters are paying for it.”