Presidential support for South Africa’s rebuild
Optimism is increasing around the development of the nation’s ports. Kerry Dimmer reports
Cyril Ramaphosa, sworn in as President of South Africa after the resignation of Jacob Zuma in February, is seen as being a net positive for the beleaguered economy and as a catalyst that will improve the GDP and inspire global confidence in the country as a whole.
It is anticipated that Mr Ramaphosa’s call for private companies and public institutions to help rebuild the economy will have a profound impact on South African ports, inclusive of infrastructure development, efficiency and more reactive responses to global port demand and trends.
Transnet National Port Authority (TNPA) has however continued on a path of development during the political upheavals and downswing in the economy over the past few years, as has Transnet Port Terminal (TPT), a division of the state-owned enterprise which is responsible for the management of 16 terminal operations at eight of the country’s major seaports, undertaking commercial handling services of sea-route freight across imports, exports, and transhipments in containers, bulk, breakbulk and automotive.
Over the past five years it has been a struggle for South African ports to prevail in the face of declining foreign investment, yet they have managed to improve their overall ranking, albeit marginally, on the International Logistics Performance Index through four major ports: Durban, Ngquara, Port Elizabeth and Cape Town, the latter of which has experienced gradual growth in the past half-decade. Durban, however, has stood out in its growth.
Durban Container Terminal (DCT), southern Africa’s biggest container terminal, has achieved “astronomical” numbers in the 2017/18 financial year by breaking multiple consecutive year records in terms of volumes. In February this year, DCT also handled the highest volumes since 2011.
In UNCTAD’s Liner Shipping Connectivity Index, South Africa ranked 41.41 in 2015. Seen as a crucial aspect in determining bilateral exports, this figure goes hand-in-hand with the Enabling Trade Index of 2016, where the country improved its ranking to 55th, and third overall for the Sub-Saharan region.
While South Africa may be the most developed nation in the region for its air, rail, road and port links, infrastructure remains the biggest challenge for the optimal operation of ports.
Last year Transnet invested heavily in port and freight infrastructure, with nearly Rand1bn pushed into maintenance and acquisition of cranes, tipplers and dredgers. Most recently, TPNA invested R250m into the future delivery of two helicopters to service the Ports of Durban and Richards Bay, making South Africa one of only three global countries to offer a unique helicopter marine pilotage service.
Other infrastructure investment made last year included the rehabilitation of Port Nolloth, on the north-western coast of South Africa, one of several projects the TNPA is delivering in terms of fulfilling the government’s Operation Phakisa: Oceans Economy initiative, which aims to tap into the vast potential that the country’s shores offer for employment and economic growth. Under Operation Phakisa, R2m has also been invested into the dredging services and keel-laying of the first tug boat to be built in Port of Port Elizabeth.
Richards Bay Coal Terminal, the third-largest facility of its kind in the world, is hoping to set a fresh export record this year as a R1.3bn equipment replacement programme edges closer to completion.
The Port of East London has also played host to several major infrastructure and equipment projects with TNPA pumping a collective R542bn into the country’s only river port in the last few years. Its latest project, at a cost of R108m, rehabilitates the 83-metre wharf adjacent to the Princess Elizabeth Dry Dock and Latimer’s Landing.
Cape Town is a port that is badly in need of upgrades given its 40-year-old infrastructure. Its manager, Mpumi Dweba Kwentana says that environmental pressures beyond the port’s control have forced thinking around a new strategy: “…where the Port of Cape Town is going to be positioned as a one-stop shop.” There are four main objectives receiving attention: being agile, digital, admired and united, says Ms Kwentana, and these will be achieved by integrating port activities. Currently there is space capacity at the port’s container terminal and for liquid and great bulk.
Trends and responses
Equally important as infrastructure development and rehabilitation is digitalisation, which is one of the port’s key priorities. Nozipho Sithole, chief executive of TPT, confirms that South Africa’s ports have some ground to cover with regard to technological advances when compared with its best performing global counterparts, but has started to make some headway.
The Transnet Track & Trace App is a case in point in terms of technological advances made thus far. The app allows cargo owners a pipeline view of their consignments throughout the supply chain, enabling them to make necessary decisions fast.
Another IT solution, seen as a flagship solution, is GCOS3, a terminal system that manages cargo. This system, used at Transnet terminals, was recently purchased by, and supplied to, the Port of Cotonou in Benin, along the west coast of Africa.
TPT is also aiming for connectivity between ports, which it defines as when information technologies and business model innovations enable an intelligent collection, distribution and transportation system. But it must also drive efficiency in the operation of logistics, information and fund flows in the port ecosystem.
“Digital technologies and open innovation will add renewed dynamism into our traditional port industry and support port operators in breaking current industrial barriers. A connected port is not just about the application of new technologies, it involves rethinking business models and is a practice of value innovation,” explains Ms Sithole.
“As we have seen in the case of China’s annual value creation in logistics from Shanghai catchment areas, the results of being a connected port have had a significant impact on all the efficiencies of collection, distribution and transport systems.”
TPT also notes that one of the biggest current trends in the shipping industry is that vessels are becoming larger, so ports and operators in South Africa need to accommodate those. “We are alert to vessel size increases, hence our aim to match these with increased berth size capacity,” says TPT’s chief operations officer, Themba Gwala.
South Africa does enjoy a competitive transport and logistics sector though, as Mr Gwala points out: “We have strong scores for the ease and reliability of shipments and we see improvements in the efficiency of our intermodal systems.
“Our customs and border agencies are under a lot of pressure to further improve efficiencies in the system to enable improved ease of trade.”
South African ports remain consistently efficient and capable of handling multiple commodities. “Our ports are also cost-competitive,” says Mr Gwala. “Port tariffs have decreased in real terms over the past three years, with our terminal handling charges being among the lowest in Africa.”
Port and terminal handling costs in South Africa are only 15.57% of the supply chain cost, which is less than the average of 27.5%. “It is important to note that in this vein our ports are self-funded, unlike Chinese ports that are fully funded by the government. Our total port charges are 12% lower than the average charged by other ports globally.”
Positioning for trade
With trade in Africa on the rise, reaching up to 18% of the region’s total exports, the African market and intra-trade is a crucial cornerstone for South African producers, particularly those providing value-added products. “Almost 29% of our merchandise exports are sold in other African countries, so over and above what TPT is doing in South Africa, we are also more involved in supporting government’s drive on growing trade on the continent,” said Ms Sithole.
“TPT is also pursuing an international expansion strategy under the banner of Transnet International Holdings. The Port of Cotonou in Benin, mentioned earlier, is such an example. It has the potential to become a major trade hub in the West African region, facilitating trade of captive cargo locally and from the hinterland to Northern Benin, Niger, Nigeria and Burkina Faso.
Through Transnet’s Africa Desk, TPT has signed a five-year technical and co-operation agreement with SOBEMAP (Société Béninoise des Manutentions Portuaires), the maritime authority of Benin, to provide technical advice and support in order to improve the operational efficiency of its existing container terminal at the Port of Cotonou.
While this confidence highlights the respect that TPT attracts on the continent, it does not counter the fact that no African region has Africa as its first trading partner, be that imports or exports. “The majority of our trade is with the EU and Asia. This indicates poor integration of African markets while recognising that there is a massive demand for commodities beyond its shoreline,” says Ms Sithole.
In terms of uniting African markets, many industries are placing their faith in the African Continental Free Trade Area. From the ports’ perspective Ms Sithole says: “We are confident that The African Continental Free Trade Area will encourage international investment, particularly in infrastructure, that will in turn address the intra-continental issues, which despite almost doubling in the past 18 years, have given rise to pressure on transportation and logistical infrastructure that impacts on shipments, slowing them down.
“The desired outcome for South African ports would be for the African Continental Free Trade agreement to actually lead to growth in cargo volumes across the continent.”
TPT acknowledges the need to further improve port productivity levels in South Africa although, as Ms Sithole points out, with the exception of China, those levels are in line with other BRICS (Brazil, Russia, India, China and South Africa) nations but ahead of all other African ports in terms of ship working areas. “Our main focus is to place our terminals’ productivity levels in the top five of the world rankings,” Ms Sithole concluded.
POTENTIAL NEEDS TO BE NURTURED
Dr Andrew Shaw, a PwC Africa partner and its transport and logistics leader, has recently published a comprehensive analysis on port development in Sub-Saharan Africa. Called Strengthening Africa’s gateways to trade, the report emphasises the value of regional ports and the role they have to play in fostering national economic growth and enhancing trade, as well as attracting direct scheduled vessel calls by the larger global shipping lines.
Dr Shaw highlighted for Port Strategy relevant South African port data, including one of the most significant findings – defining major hub status. Using Rotterdam as a baseline for hub attractiveness with a score of 421, South Africa’s Durban, Cape Town and Ngqura ports secured the top three positions across Africa. The 94 score for Durban does however reflect just how hard the country needs to work on infrastructure, cargo volume growth, and heeding demand for larger shipping berths, among other trends.
“Although Durban stands out as having the largest hub port potential in Africa, its challenge is to sustain and enhance its hub status,” says Dr Shaw. “This will depend on its ability to sustain throughput growth into the future. The port is constrained in terms of where additional capacity may be developed.
“There has, until recently, been a strong focus by Transnet National Port Authority (TPNA) on developing the Durban Digout Port, but there may be less costly options to increase container terminal capacity prior to undertaking this project through further developing facilities within the existing Port of Durban.”
He continues: “Sustaining the Port of Durban’s hub status in the southern hemisphere will require improved port productivity as well as a clear strategy for infrastructure development ahead of demand in order to limit port congestion to a minimum. Tariffs also need to be competitive, especially for transhipment traffic in order to enhance hub port attractiveness.”
However, as Dr Shaw points out, South Africa’s economic growth rate over the past five years has been muted; gross domestic product was just 1.8% per annum, according to the National Treasury. This has inevitably impacted the national container growth rate, which from 2001 to 2014 was almost 7% per annum, according to TNPA.
“For the Port of Durban to remain as Sub-Saharan Africa’s dominant trading gateway, it will need to support more direct vessel calls as well as supporting a network of smaller vessels which feed neighbouring ports,” says Dr Shaw. “But this is true for all ports that seek to dominate trade for large regional blocks of countries; only then will they be prioritised by shipping lines.”
Dr Shaw remains positive that with TNPA’s strong investment into growth in cargo volumes at South African ports, and its accommodation of larger vessels, the country’s ports will continue to support and deliver to Sub-Saharan Africa’s hinterlands.
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