Freight Logistics and Port Interfaces

1. Parliamentary Presentation 2007 Freight Logistics and Port InterfacesBy the RailRoad Association of South Africa

2. Freight Logistics and Port Interfaces Background: • The RailRoad Association of South Africa (RRA) wishes to thank the Transport Portfolio Committee in the National Assembly for giving us the opportunity of presenting our views in connection with the present freight logistics system, and in particular, the interface between ports and the land transport modes. • The need for effective and efficient land freight systems for countries world-wide today goes without saying. • In the case of South Africa it was only after 1994 that a need to develop and effectively manage predictable and efficient land freight logistics became paramount. • International benchmarking exercises have confirmed that South Africa’s logistics costs are double that of its major trading partners when measured as a percentage of GDP. • South Africa’s elevated input and external costs impact negatively on the country’s and SADC’s competitiveness and balance of payments.

3. Freight Logistics and Port Interfaces Background: • External costs in South Africa associated with transport are high relative to many other developing economies while transport sector CO2 emissions are estimated at 20% of total emissions – a level associated with developed industrial nations. • It has now become imperative for South Africa to develop and manage its modal interfaces efficiently and to choose the most cost-effective land transport mix to benefit the economy. • RRA is making this submission in the hope that it can contribute in a positive way towards plotting a way ahead. • To achieve this, it is necessary to highlight present shortcomings in the freight logistics cycle and to make positive suggestions as to how improvements can be made.

4. Freight Logistics and Port Interfaces Introduction: Where are we coming from? The South African Freight Transport Crisis • More and more rail traffic is being forced to road every day. Dissatisfied rail customers are having to use road transport when services cannot be provided – even after pre-planned arrangements have been made with the national rail operator. • This disturbing trend is threatening to undermine government’s desire to transfer road traffic to rail. And this is happening at a time when government is promoting major investment in railway infrastructure and equipment. • Unfortunately, this investment is long overdue and it may take too long for any new equipment to make a significant impact. In any case, once former rail users switch to road their entire logistics network can change and there is a general reluctance to return to rail.

5. Freight Logistics and Port Interfaces Introduction: The South African Freight Transport Crisis (Continued) • The private sector can assist but to date it has not been given adequate opportunities to do so. • An urgent meeting must be convened between representatives from the railway industry and government in an attempt to break the log-jam. • The future of the local rail industry is at stake and there is a threat of greater foreign penetration in procurement activities. Local employment opportunities and skills development endeavours may be undermined.

6. Freight Logistics and Port Interfaces Institutional Issues: The Current Situation • The National Railway operator has been subjected to 20 years of underinvestment and unrealistic performance demands by the shareholder. • The historic social responsibility of providing low cost freight and passenger services to rural communities, agriculture and industry was replaced by a bottom-line driven performance demand, irrespective of ultimate long-term costs to the nation. • As a result, general freight traffic has dropped from some 140 million tons to just 80 million at present. While growing iron ore and coal exports helped to keep the overall traffic level in the range of 180 – 185 million tons large volumes of rail traffic including some export minerals, domestic coal and agricultural products have been forced to road – at a time when the national economy and freight transport market has been expanding at over 5% per year.

7. Freight Logistics and Port Interfaces Institutional Issues: The Current Situation (Continued) • Rail services to many industrial townships have all but ceased. • Services on some 5 000 km of lines (nearly 25% of total) have been withdrawn, leaving many rural communities without rail connections. • Increasing road transport usage has led to the dramatic road degradation, congestion and increasing accidents on South Africa’s highways. • Railway lines, signalling equipment and electric cables are being stolen every day – all which affects service delivery. • Shortages of experienced personnel are chronic and the present operating staff are often working long hours.

8. Freight Logistics and Port Interfaces Institutional Issues: Where to now? • RRA believes that a thorough assessment must be made of long-term transport requirements, taking into consideration sustainable development in South Africa. This must be in line with strategies to develop South Africa’s long-term economic potential as is being done in the 50 Year National Transport Masterplan study to which RRA is providing inputs. • The role the rail mode can play in providing low cost transport to achieve this potential must be appreciated and exploited. • Externality costs such as energy efficiency, pollution, land usage, congestion and accidents must be considered. In this respect, the rail mode offers many advantages but to work in providing the best logistics balance, a cooperatively efficient interface with road is necessary. • The advantages and ultimate costs of each transport mode must be evaluated. To this end RRA has motivated a new study by a professional transport engineer working to complete a doctorial thesis on the subject.

9. Freight Logistics and Port Interfaces Institutional Issues: Where to now? (Continued) • The study is concentrating on the N3 Corridor between Durban and Gauteng but the conclusions reached will be applicable to other corridors. It will also identify cost-effective and appropriate transport modes for particular services. • The effect of heavy road freight vehicles being used on provincial roads and in urban residential areas must be appraised. For example, vehicles carrying coal in Mpumalanga have seriously damaged many secondary roads and urgent consideration should be given to reducing payloads. • In KwaZulu Natal large lorries carrying sugar cane and timber products have damaged pavements and created a hazard on narrow provincial roads. • Overloaded heavy vehicles are seriously damaging South Africa’s road network and a reduction of axle loads on secondary roads and more effective policing is required.

10. Freight Logistics and Port Interfaces Regulatory Issues: Background • The State has operated most public rail services in South Africa for almost 100 years. At union in 1910 motorised road transport was in its infancy and the road network was primitive. • While State control of the railway system was aimed at developing rural areas and promoting agriculture, industry and the manufacturing sector, rapid improvement in road transport driven by the private sector threatened the State’s investment in the railway system. • Controls were introduced which restricted road transport from competing with rail. This led to the ‘permit system’ which restricted private road operations which could have competed with railway services. • Transport deregulation took place during the late 1980’s and for the first time private road operators could compete with the State-owned railway system for any class of traffic – both short and long haul. At the same time the railway administration became a profit-driven operator.

11. Freight Logistics and Port Interfaces Regulatory Issues: Background (Continued) • Government freed the railway administration from its former ‘social responsibility obligations’ of having to provide low-cost transport for agricultural products and to far-flung rural communities. • Government also relaxed the former size, mass and axle-load specifications for road freight vehicles. This led to the rapid growth of long-haul road transport and a rapid decline in rail services and traffic volumes. • The RTQS (Road Transport Quality System) was to have been introduced for private sector operations. This never happened. • The result is an almost completely unregulated road transport industry where overloading is rife and large vehicles have access to nearly all the country’s roads – both rural and urban. Heavy vehicles are often unroadworthy and drivers work long hours.

12. Freight Logistics and Port Interfaces Financial Issues: The true cost of Road and Rail transport • The total cost of unrestricted private road haulage has not been calculated or appreciated by the public, politicians and industry at large. • The general perception of the rail industry is not positive. Claims have been made that unprofitable operations have been a drain on the fiscus while certain industries have been subsidised from excessive profits on others because of high tariffs. • This claim has been used for years to denigrate the rail mode and to show it to be technically inferior and outmoded. Yet, latest developments in many countries world-wide show railways to be at the forefront of technological development and service provision. • In contrast in South Africa, the private road freight industry is seen as being innovative and progressive. It operates some of the world’s largest heavy vehicles equipped with high-tech monitoring systems to maximise operating efficiency.

13. Freight Logistics and Port Interfaces Financial Issues: The true cost of Road and Rail transport (Continued) • In the road sector, the financial contribution made through license fees and fuel excise taxes are significant but It should be noted that the excise tax goes direct to the Exchequer. It is not a road user charge and only a very small portion is actually spent on road maintenance. • It has been claimed that heavy vehicle operator contributions to the total costs of road provision by the state, when considering both direct (internal) and indirect costs (external) is less than 20%. It is important to appreciate the fact that even railway operators pay the excise tax on diesel fuel. • The RRA motivated transport cost study has been presented in preliminary versions at both Africa Rail 2007 and the South African Transport Convention at the CSIR. • While it is too early to accurately quantify actual costs, preliminary study-work in respect of road transport confirms that heavy vehicle operators are subsidised by the State and private motorists.

14. Freight Logistics and Port Interfaces Financial Issues: The true cost of Road and Rail transport (Continued) • When examining the cost of each overland mode the issue of energy utilisation must be considered. Most rail traffic is electrically driven while road is diesel driven. • Electric rail operations, even considering extra infrastructure provision requirements, cost about 30% to 50% of diesel rail operations – depending on traffic volumes. • Based on a cost per ton-kilometre, rail operated diesel-electric locomotives consume just 25 to 30% of the fuel that road operated diesel vehicles require. • Electric locomotives use electricity generated largely from domestic power stations while diesel road vehicle use largely imported petroleum, a drain on foreign exchange.

15. Freight Logistics and Port Interfaces Financial Issues: The true cost of Road and Rail transport (Continued) • Accident and congestion costs in the road sector are a significant factor that must be considered. Policing, traffic diversion and clean-up costs must be included in any exercise. • Hazardous chemical (including petroleum products) transport by road is unsafe when compared to rail. The use of rail-served liquid fuel depots should be maximised. Closed depots should be re-opened. • Aerial pollution resulting from exhaust emissions and noise levels are factors to be considered. When compared to road vehicles, railway trains create but a small percentage of their road equivalents. • Road pavement degradation from excessive heavy vehicle traffic on the nation’s roads must be reduced. Except for the most modern National Roads, most others were constructed to the American 8,2 ton axle load standard. The axle load allowance was later increased to 9 tons – effectively creating an overload for 90% of all paved roads in South Africa.

16. Freight Logistics and Port Interfaces Financial Issues: The true cost of Road and Rail transport (Continued) • The large volumes of heavy vehicle road traffic now on our highways have exacerbated the pavement wear problem. Life cycle cost estimates that were used when designing roads in the past have been distorted. Estimated pavement life of about 15 to 20 years has been reduced by 40 – 50%. • Total historic and current infrastructure value as well as sustainable maintenance costs for road and rail should be considered. Internationally, rail, when reasonably utilised, can provide four times the freight capacity for each Rand spent on infrastructure. • Just-in-Time transport strategies which benefit the manufacturing industry, for example, must include the external cost of providing such services. In busy urban areas the congestion resulting from road-side deliveries of beverages and other commodities must be factored. • Very large high axle load Interlink road combinations should not be given access to urban areas. They should be required to utilise perimeter depots where each trailer can be detached and delivered separately.

17. Freight Logistics and Port Interfaces Technical Challenges: Towards Intermodal Cooperation • Intermodal link-ups between road and rail operators should be promoted, as is being done in many countries world-wide. • Multimodal cooperation is urgently required to obtain the best pay-back for infrastructure and equipment investment. Government must evaluate the benefits of intermodal services and the creation of hub development nodes. • Government should encourage public-private sector involvement in the creation of intermodal exchange points by investing in infrastructure creation. The private sector will invest in operating equipment and can become a shareholder in hub development areas. • A more effective interface between port operations and the overland transport modes is an urgent necessity. Creation of satellite intermodal transfer facilities, designed to reduce urban congestion, particularly near Ports, must be expedited.

18. Freight Logistics and Port Interfaces Technical Challenges: Towards Intermodal Cooperation (Continued) • Existing industrial townships which are served by municipal access rail lines to private sidings must be identified and investigated to determine future potential for business development. No railway lines or private sidings should be removed until their possible future use has been thoroughly investigated. • Municipalities must be approached to ensure that this infrastructure is protected. Industry and business interests should be canvassed to determine their attitude towards returning to rail for certain services. • Present road and rail operators should be brought together to identify possible places for cooperation to the benefit of both, and ultimately, the country. • Specialised terminal operators can provide services between main line railways and private siding owners.

19. Freight Logistics and Port Interfaces Technical Challenges: The ‘Now’ requirement for a rail revival • The private sector should have greater meaningful participation in policy matters, operating issues and equipment designs. Private companies should be able to purchase or lease their own locomotives and railway wagons. • The private sector is generally not invited to participate in designing equipment. Instead, it is purely treated as a contractor/supplier. • Railway industry suppliers can contribute as part of a ‘think-tank’ process and reduce the present long lead times of three or more years in acquiring new equipment. • Many short-term, even more long-term operating problems and service constraints can be resolved by inviting participation by the private sector.

20. Freight Logistics and Port Interfaces Technical Challenges: The ‘Now’ requirement for a rail revival (Continued) • Fast-tracking branch and light traffic density outsourcing is essential. The longer it takes to revive services on these lines the more difficult it will be to succeed. The current delay is counter productive and unacceptable. • Open access on certain portions of the main line network is essential. Some traffic which the current railway administration finds unprofitable could be outsourced to a third-party operator. • The National Freight Logistics Strategy approved by the Cabinet in September 2005 called for the implementation of an outsourcing strategy but there has been little reported progress. This is unacceptable and requires an urgent implementation.

21. Freight Logistics and Port Interfaces Technical Challenges: Skills development and BEE initiatives • There is an urgent need to train young people to enter the transport industry. This includes management, engineering and artisan training, as well as operating knowledge and safety responsibilities. • Reviving rural rail services will assist to empower local communities to take greater control of transport in their regions. This will reduce dependence on highly centralised distribution of goods as is the current norm. • This will generate employment in warehousing and distribution in these places, and create employment opportunities in rail and road construction, maintenance and operations. • The Draft Transport BEE Charter was finalised in early 2006. RRA has been involved since the inception of the process and supports the concept.

22. Freight Logistics and Port Interfaces In Conclusion: The Way Ahead • A Road Safety Regulator must be urgently established to control private road transport as has been done in the railway sector with the Railway Safety Regulator. • Appropriate User Pay principles for road operators must be introduced. Similar systems must be introduced for entrant rail operators using State-owned infrastructure as is done in Australia and Sweden. • Restrictions on heavy vehicles using provincial and urban roads must be introduced and strictly enforced. • When completed the RRA sponsored transport cost study should be carefully studied and the findings understood. Necessary interventions into the transport sector that may result will have to be treated with urgency to reverse the present trend of infrastructure degradation and unfair cost allocation to transport operators, industry and the country in general.

23. Freight Logistics and Port Interfaces In Conclusion: The Way Ahead (Concluded) • Moving ahead quickly with the National Freight Logistics Strategy is essential. • A consistent transport policy between the National and Provincial governments must be promoted. • The South African transport service and manufacturing industry must be given greater opportunity to interact with the railway administration. SOE’s should encourage greater cooperation with the private sector. • RRA is prepared to assist in any way that may lead to sustainable transport and development in South Africa.

24. Parliamentary Presentation 2007 Freight Logistics and Port Interfaces Thank You RailRoad Association of South Africa