- Transnet Freight Rail (TFR) is Transnet’s largest operating division and manages the bulk of the freight rail infrastructure in South Africa. This consists of heavy haul lines for export coal (through the Richards Bay Coal Terminal) and iron ore (through the Saldanha port terminal). The remainder of the network is operated under General Freight Business (GFB).

- Transnet Rail Engineering is responsible for rolling stock maintenance.

- Transnet National Ports Authority (TNPA) is the landlord for South Africa’s seven major sea ports. TNPA’s business is divided into two key operational areas: port infrastructure and maritime operations. Port infrastructure and maritime services are provided in five market segments: containers, dry bulk, liquid bulk, break‐bulk and automotive.

- Transnet Port Terminals (TPT) provides cargo handling services to shipping lines, freight forwarders and cargo owners (there are also private port operators that serve niche markets and do not directly compete with each other or with TPT).

- Transnet Pipelines is responsible for its pipeline network (this excludes non‐Transnet pipeline operations, such as those managed by Sasol).

Although this paper focuses on the port and rail system, the road network is an important link in the freight logistics system. The road network maintenance and build is split across national, provincial and municipal jurisdictions. The national road network falls under SANRAL within the Department of Transport, while provincial and urban roads are managed by the relevant provincial and municipal authorities. Road transport services for both freight and passengers in South Africa are provided almost exclusively by the private sector.

# 3 Problem statement: Rail and port networks are failing South Africa’s exporters

The previous section described the unique environment of South Africa’s transport landscape, both from a physical and institutional perspective. Indeed, the combination of Transnet and privatized road freight service plays a key role in determining the transport logistics choices made by the private sector. This has resulted in freight flows increasingly dominated by road transport. At the time of the first State of Logistics Survey in 2004 road already accounted for 84 percent market share in volume flow. This has increased to close to 90 percent in 2013 (CSIR, 2014). This modal imbalance, combined with poor performance of South Africa’s ports, is central to the transport logistics challenge undermining export competitiveness.

Why does rail matter in this context? Why not simply rely on what is a fairly efficient road freight network? There are several reasons why it is important to ensure exporters (and in fact all shippers) have access to an efficient and competitive freight rail network. First, for a substantial subset of transport journeys, rail will be the most cost efficient mode (see Box 3); and for a wider set of journeys some combination of rail and road (intermodal) will be most cost efficient. Thus, if some exporters (particularly smaller and less centrally located ones) are forced to settle for a less cost efficient transport mode, their competitiveness will suffer. Second, the existence of rail as a credible alternative to road has a disciplining effect on the competitiveness of road freight.<sup>5</sup> Third, given the fixed cost nature of rail there exists a downside ‘tipping point’ whereby declining competitiveness contributes to lower incentive to invest in the network, which undermines competitiveness still further, leading to a downward spiral. Finally, rail freight minimizes many of the negative externalities posed by road freight which are borne by the state and road users, including: increased congestion; more road accidents; higher harmful emissions; higher road maintenance requirements; and higher logistics cost on poor roads.

> 5 In many countries, the road freight sector displays cartel behaviour (World Bank, 2011a).

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