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BRIEFING TO THE PORTFOLIO COMMITTEE ON AGRICULTURE,FORESTRY AND FISHERIES

30 AUGUST 2011

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CONTENTS

Agricultural Industry Overview – Grain, Timber and FMCG

Agricultural Industry - Rolling stock

Performance

Challenges

Transnet Freight Rail Solutions

Successes

Industry Structure

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INDUSTRY STRUCTURE

• Seasonal production. • Droughts / flooding influence production.

• Influenced by fuel price.

• Import / export imbalance.

• Multiple sourcing points.

• Inability to plan investments and volumes to be transported.

• Lack of consolidated loading facilities.

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AGRICULTURAL INDUSTRY OVERVIEW

• Transnet Freight Rail (“TFR”) serves Grain, Timber and Fast Moving Consumer Goods (“FMCG”) customers.

• The Timber business is mostly limited to Mpumalanga and KwaZulu-

Natal areas with the largest mills in Umkomaas, Richards Bay and Ngodwana. TFR transport mostly timber logs, mining timber and pulp.

• The FMCG business provides transportation of sugar cane, beer, sugar and malt. Sugar cane being transported from the KwaZulu-Natal sugar cane fields to the local sugar mills.

• The Grain rail business is the transportation of maize, wheat and barley. The Free State, Northwest Province and Mpumalanga are the largest grain producing areas in the country.

• TFR moves maize and wheat to various Southern African countries e.g.

Botswana, Mozambique, Zambia, Namibia, Lesotho, Swaziland and Zimbabwe.

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GRAIN INDUSTRY OVERVIEW – GRAIN SILO MAP

Silo owners and input suppliers: analytical work on concentration of ownership amongst a few former grain co-operatives suggests that there are good reasons for concern about oligopoly pricing. Grain silo ownership is highly concentrated, with three former co-operatives, Sentraalwes (SWK), OTK and NWK owning 72% of all silos.

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GRAIN INDUSTRY OVERVIEW – VALUE CHAIN

Import/exports

Raw materials

Finished products

By products

Farms

Imports

Co-op / Silos

Exports

Mills for human consumption

Stock feed manufacturers

African products

Oil presses

Sugar mill

End users

• Complex value chain consisting of farmers, co-operatives, millers, traders, silo owners and manufacturers

• Market centres around the search for the lowest delivered cost• Availability & quality of raw material or inputs also play a role• Logistics cost: transport cost makes up a major portion of the delivered price of grain• The net effect of the characteristics is an industry characterised by random and unpredictable

flows• Transnet Freight Rail (“TFR”) is mainly involved in inbound logistics in this industry i.e., TFR

rails grain from silos to mills and animal feed producers as well as exports and imports when required.

Scope of TFR services to grain industry

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GRAIN INDUSTRY HUBS : NETWORK – WIDE HUB

Belville

Beaconsfield

Sentrarand

Kroonstad / Gunhill

Durban

•9 Major “grain” hubs in network to distribute traffic geographically

•Hubs are consistent with operating models for clusters from branchline concessioning project

Bethlehem

Klerksdorp

Coligny

Polokwane

Bloemfontein

Capital Park, Pretoria West, Waltloo

Krugersdorp

East London

Welgedag

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AGRICULTURAL INDUSTRY: ROLLING- STOCK

• Timber Industry

The wagon mostly used in this Industry is the ST wagon. A skeleton type wagon which can be easily loaded from the side or top. Mostly used for the transportation of timber logs.

• Grain Industry

The wagon mostly used in this Industry is the FZ and FG type wagon. Carrying capacity of these wagons is 44 tons.

• FMCG Industry

The wagon mostly used in this Industry is the FZ and FG type wagon. The Industry also makes use of closed wagons with special security features. These wagons are used for the transportation of beer.

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GRAIN INDUSTRY: ROLLING - STOCK

1,967 1,836 1,772 1,870 1,881 1,866

5,077 4,903 4,752 4,845 4,5694,182

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

05/06 06/07 07/08 08/09 09/10 10/11

FINANCIAL YEARS

# W

AG

ON

S I

N F

LE

ET

FGD, FGJ, FGL, FGLJ FZ, FZD, FZJ, FZL, FZLJ TOTAL

Average Fleet Sizes for past 6 years

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GRAIN INDUSTRY : HISTORICAL VOLUMES

012

34567

89

10

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mil

lio

ns

FINANCIAL YEARS

TO

NS

BUDGET TONS ACTUAL TONS

• Maize and wheat has declined from 7.8mt per annum in 1992 to 3,5mt in 2010

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GRAIN INDUSTRY : HISTORICAL PERFORMANCE 2010/11

• TFR has not matched the demand for grain (maize and wheat) in the 2010/2011 financial year. TFR managed to rail 3.54mt out of a budgeted figure of 5.29mt – this includes overborder, domestic, imports and exports.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

TO

NS

TONS BUDGET TONS ACTUALS

TONS BUDGET 381,634 415,927 435,151 398,074 435,147 417,301 489,620 640,532 422,759 416,017 452,985 377,489

TONS ACTUALS 265,615 200,657 297,913 315,493 356,651 309,775 308,259 347,014 272,173 257,291 314,641 280,263

Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

CATEGORY Imports Exports Overborder Domestic TOTALBUDGET 0.84 0.56 0.27 3.63 5.29ACTUAL 0.44 0.43 0.24 2.44 3.54

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AGRICULTURAL INDUSTRY : CONTRIBUTORS TO THE LOSS IN TONNAGE

• Decline in TFR rolling stock (wagons and locomotives) quantities.

• Age and condition of rolling stock (breakdowns lead to late deliveries).

• Decline in service levels as a result of cable theft, infrastructure

failures, historical underinvestment in maintenance.

• Competing rates for empty return leg traffic.

• Seasonality of yields does not lend itself to sustained investment in a

climate of investment squeeze.

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SUCCESSES

 • Increased maize trains out of Kroonstad and Kimberley.

• Grain export through East London reinstated.

• Reefer containers started to move Avocado Pears from Mpumalanga.

• Collaboration with Timber Industry to develop new generation timber wagons.

• Timber optimisation – customer established mega loading site to fit in with rail block load concept.

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CHALLENGES

 INDUSTRY• Lack of bi-directional traffic.• Small consignment sizes – silos cannot accommodate block loads.• Lack of investment in silo loading equipment.• Unpredictable local-, import- or export flows.• Multiple sourcing points (200 at least).• Seasonality of specific products e.g. sugar cane.• Fragmented because of numerous players.• Imbalance between imports and exports.

TRANSNET FREIGHT RAIL• Small consignments not cost effective for rail.• Long turnaround times of wagons.• TFR limited rail capacity:

- Locomotives- Slots

• Age of TFR’s locomotives and wagons.

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TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE

INDUSTRY

• June 2007: TFR decided to remain in agricultural market despite heavy

losses

Collaboration with industry to improve service levels;

Food security is a key driver;

Small consignments and numerous loading points not conducive to

rail; and

Developed strategy for less than train load traffic (met with limited

success).

• April 2011: Introduced the Grain Optimisation project which had positive

results in many areas.

Improved service levels;

Decreased turnaround time of wagons;

Dedicated cross functional team to address operational and service

related issues;

Multiple shunts too costly for TFR; and

Need to increase average train length by introducing consolidated

loading points.

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TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE INDUSTRY CONT…

• Collaboration projects with Industry

− Designing and the building of a new generation timber wagon.

− Timber customer developed a mega loading site to fit in with TFR’s

block load traffic concept . This is a win-win situation for both parties.

− Customers erecting lighting at sidings to allow rail operations at

night.

− Thuthihlathi 1 and 2 collaboration projects where traffic of different

timber customers was consolidated and moved as block load traffic.

• Private Sector Participation (“PSP”) Initiatives

− Customers and TFR in talks to conclude various PSP Agreements to

enhance investment in industry and service levels.

• Customer Relationship Management

− Discussions with all grain customers interested in deep sea maize

exports to discuss new slots/additional capacity on a regular basis.

− Talks with Grain Industry role players to explore solutions to Industry

challenges.

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TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE

INDUSTRY CONT…

• Branch lines concessioning. Positive spin-offs and more traffic

expected.

•Business Unit (“BU”) concept for Agriculture with related

commodities. A specialised team that will exclusively service this

BU.

• TFR to improve services for BEE farmers.

• Finally, in line with employment creation, TFR continues to prioritise

the communities within which it operates.

18PAGETHANK YOU !THANK YOU !THANK YOU !THANK YOU !