Saldanha Bay, West Coast, South Africa, Railway trucks carrying iron ore from Sishen to Saldanha Bay terminal on the West Coast of South Africa. (Photo by: Peter Titmuss/UCG/Universal Images Group via Getty Images)
It has been a tough year and a half for Transnet. In that time, the state logistics company has declared four force majeures, each of which have hamstrung fiscally-supportive exports.
In the most recent blow to Transnet, unions have gone on strike after the company tabled a wage offer that labour has described as an insult to workers battling with the cost of living crisis.
Transnet’s recent upsets have underlined the risk the entity poses to the economy — seeing it being compared to the Eskom-triggered energy crisis — exposing a peril of which striking labour unions are well aware.
Workers represented by the South African Transport and Allied Workers Union (Satawu) downed tools this week, officially entering the fray after the United National Transport Union (Untu) initiated strike action at Transnet.
‘Backwards all the time’
The strike prompted the company to declare yet another force majeure, which stands to severely constrain the commodity exports that have buoyed South Africa’s economy amid post-pandemic headwinds.
Alan Mukoki, chief executive of the South African Chamber of Commerce and Industry, said the strike at Transnet “is a very big concern”.
Businesses are already struggling as a result of poor performance at the rail and road and pipeline company, Mukoki said, “and now you add a strike on top of it all – we are just going to go backwards all the time”.
There is no doubting the risk Transnet poses to investor confidence, he added. “It is already a difficult environment … Investors are not really sure about what is going to happen. The problems at Transnet just compound the problem. We are hoping that the authorities, including labour, find a resolution to this very, very quickly.”
Earlier this week, Kumba Iron Ore flagged this threat, noting that export sales would be affected by about 120 000 tonnes a day. The disruption means production could be curbed by about 50 000 tonnes a day for the first seven days and about 90 000 tonnes a day thereafter.
Kumba’s announcement comes days after Thungela Resources, South Africa’s largest coal exporter, said a protracted strike would force it to curtail production, resulting in the potential reduction of up to 300 kilotonnes of exports.
The announcements by the two mining companies follow comments from Minerals Council chief executive Roger Baxter who likened the economic effect of Transnet bottlenecks to the country’s energy crisis.
According to the council, deteriorating logistics performance has resulted in the loss of R50-billion in 2022 so far. The Bureau for Economic Research noted that the R50-billion equates to roughly 0.7% of nominal GDP.
A functioning Transnet and a rise in commodity export volumes would have a profound positive effect on South Africa’s trade balance and would boost mining production, employment and investment, the bureau said in a research note this week.
The South African Association of Freight Forwarders warned that the impasse at Transnet could block more than R8-billion worth of goods each day, costing the economy more than the energy crisis. According to estimates by Business Unity South Africa, stage 5 and 6 load-shedding costs the economy R4-billion a day.
“The economic extent of this action is not fully understood by decision-makers,” the association said.
Reaching an understanding
Labour made the bold demand for a 12% to 13.5% wage increase in the wake of the brutal cost of living crisis. On Monday, labour rejected a new offer of 4.25% to 5%, according to Satawu.
In an effort to resolve the impasse, unions and Transnet faced off at the Commission for Conciliation, Mediation and Arbitration (CCMA) this week. In light of the potential economic fallout of the strike, Employment and Labour Minister Thulas Nxesi was part of Monday’s meeting.
In response to questions from the Mail & Guardian, Transnet reiterated that it is in discussions with labour to find an amicable solution to the strike, “which has a profoundly negative impact not only on employees and the company, but on the economy as well”.
Transnet said it has contingency plans in place to ensure business continuity.
Satawu says it has contacted Minister of Finance Enoch Godongwana and Public Enterprises Minister Pravin Gordhan, both of whom have been mum on the strike.
Staying out of the wage negotiations could be the best course of action for Gordhan, given that he was burnt in the 2018 Eskom talks. Those negotiations saw Eskom having to take back its initial 0% wage increase after workers went on strike. Eskom unions eventually accepted a 7.5% increase for 2018.
Perhaps complicating matters at Transnet, Eskom workers recently won a 7% wage increase after a strike again forced the state power utility’s hand.
Last week, Untu general secretary Cobus van Vuuren noted that Transnet — despite being one of the state-owned entities at the centre of South Africa’s economy — has received limited state bailouts. Transnet has not even received a government guarantee since 1997.
“We are not saying the government must bail out all the companies that do not know how to manage their money but why are they [Transnet] not trying to reach out to the government like other state-owned entities Eskom and Denel?” Van Vuuren asked.
Self-correct
It is difficult to compare the calamity at an entity such as Eskom to Transnet.
Transnet’s liquidity, which will be weakened if the company has to make a higher wage offer, is less than adequate — though it is in a better position than Eskom, said Omega Collocott, director of corporate ratings at S&P Global.
Eskom’s liquidity has been weak for the past four years or so, Collocott noted. This means Eskom, at any point in time, doesn’t have enough internally generated cash flow to settle obligations over the next six months.
“Sometimes that is actually six months and sometimes as little as a few days, depending on the point in time. So, their ability to self-correct is more limited than Transnet’s,” Collocott added.
“Eskom, I don’t think, has an ability to self-correct. Transnet can — but it needs support from funders and it needs to repair its operations, because there is a lot of natural demand for its operations. They just aren’t able to operate at their planned capacity.”
S&P primary credit analyst Munya Chawana noted that Transnet’s revenue has deteriorated, while its operating expenses have increased.
“From our perspective, if there are increases in terms of salaries, that will definitely worsen Transnet’s financial performance, especially if the volumes do not pick up in the current financial year,” Chawana said.
Transnet’s inadequate liquidity means that if the firm does agree to higher wages, it may have to compromise other expenditure, for example critical maintenance expenditure needed to keep the ports and rail operations running.
Collocott noted that, despite it recently reporting a R5-billion profit, this is a fairly marginal level of profitability for a business of Transnet’s scale. “It is really not doing enough of what it is supposed to do and, what it is doing, it is not doing very profitably. Poor performance of power and transportation infrastructure are both huge national problems, economically speaking.”
Labour is not blind to the effect of further hamstringing Transnet’s operations.
Speaking to the M&G before Monday’s CCMA meeting, Satawu general secretary Jack Mazibuko said: “We know that the strike will negatively affect the ailing economy. We also affect the Transnet operations very badly. But, unfortunately, workers do not have a choice.”
Van Vuuren echoed this sentiment. “We understand that this strike action will have a massive effect on the economy.
“As a responsible union, throughout the wage negotiations we have provided Transnet with various suggestions and guidance on how they can come up with an offer that would be more palatable to our members. Any labour union only uses strike action as an absolute last resort.” — Additional reporting by Mandisa Ndlovu
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