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14 August 2008

Programme director
Ladies and gentlemen.

I would like to congratulate the South African Shippers Council for taking the initiative to arrange such a conference since I am firmly of the view that in the area of logistics collaboration between the stakeholders will assist us in developing a more integrated and efficient freight logistics system in South African. I would like to thank you for the opportunity to address this occasion, the first of what will hopefully be many more such conferences.

Competitive transport and logistics costs must always be a key objective in a trading economy such as ours in South Africa. A study conducted in 1998 by Moving South Africa found that, although there were small pockets of co-operation locally, South Africa lagged way behind the United States of Anerica (USA), the United Kingdom (UK), Western Europe and Asia in terms of supply chain collaboration and integration.

We have made a degree of progress since 1998 but we have to do more. Effective inter modal transport solutions, particularly between road and rail, and genuine supply chain collaboration, are critical to the efficiency of South African supply chains, which in turn are critical to industrial competitiveness.

In the global economy within which we now operate industrial competitiveness is the basis for economic growth, job creation and poverty alleviation. The massive impact that Information and Communication Technologies (ICT) has had on all logistics and production processes means that our freight systems have to be upgraded and modernised. The new National Operations Centre of Transnet Freight Rail (TFR) is an example of what we are required to do.

As custodian of ports, rail and pipeline infrastructure in South Africa, Transnet, which reports to the Department of Public Enterprises (DPE), has a crucial role in ensuring the creation of world class, efficient logistics infrastructure.

The unsurpassed growth of freight traffic as South Africa's economy began to grow, coupled with the lack of adequate investment in infrastructure spanning three decades, has placed immense pressure on infrastructure and operations, and the ability to deliver capacity ahead of demand has been hampered.

In order to ease these pressures, Transnet will be making massive investments in infrastructure over the coming years. Improving efficiency and service delivery to customers remains a key objective. We cannot afford any inefficiency in our rail, ports and pipeline infrastructure and the DPE and Board of Transnet are only too aware of this and are doing all we can to remove any inefficiency.

However, to achieve this we need a financially sound enterprise that is capable of massive infrastructure investments coordinated across the various freight systems. It is such systematic infrastructure investments that can form the basis of innovative and mutually beneficial partnerships with the private sector operators.

The first task embarked upon in 2004 was to strengthen and stabilise Transnet. Transnet's turnaround strategy over the past three years, which included, among other things, the disposal of non core assets and properties, ensures that it is streamlined to focus on its core areas, and is poised for growth. Over the next five years, it will spend over R80 billion in its capital investment programme, aimed at revitalising and extending its infrastructure, building new ports, and modernising freight facilities.

We expect that this investment programme will be sustained well beyond five years, in order to meet the demands of a growing economy. Sustaining such a large investment programme over the years to come no matter what the cyclical conditions in the wider economy it a long range strategic investment programme best undertaken by a State Owned Enterprise (SOE).

However, it requires Transnet to maintain is financial stability and requires continuous improvements in operating efficiency. It is for this reason that we have given priority to Transnet's balance sheet strength. Maria Ramos and her management team have done a great job in this area and this has now laid the basis for more emphasis on growth and efficiency.

Improvements in the rail infrastructure and equipment are particularly important. The Fourth State of Logistics Survey (2007) shows that approximately 87% of all land freight tonnage is carried by road, with the remainder carried by rail. Generally, road transport costs anything between 30% and 50% more than rail transport additional costs which cargo owners and end customers have to bear.

It is therefore imperative to ensure that we improve ageing infrastructure in rail, that we improve our inter modal transport services, and that we enhance supply chain collaboration and integration across the system, so as to improve efficiency and service delivery to customers.

A growing and changing economy will always throw up new challenges for the rail system. A case in point is that of the roads in the Mpumalanga area. Trucks hauling coal to Eskom's power stations in the Witbank area have caused massive damage to roads in that area and we are giving careful attention to the extent to which new and upgraded rail infrastructure could alleviate this damage.

Another challenge that I see emerging is the impact of rising food prices on agricultural production. We could possibly see increased investment in agriculture and again the challenge of efficient logistics will emerge.

As Transnet's emphasis shifts to growth it will be necessary to find effective working relations with shippers and to explore a range of possible partnerships with other players in the freight system. The Transnet board have a mandate to explore any arrangement that will improve the efficiency and capacity of the freight system. Such opportunities exist and I am certain will evolve in the rail and port systems.

Another important area of partnership is not directly in the freight services as such but in the supply chain of the capital and other equipment needed. The Competitive Supplier Development Programme (CSDP) for Transnet has now been adopted and opens possibilities for partnerships with competitive suppliers. This will have a significant impact on manufacturing in South Africa and since Eskom are implementing the same approach there are many synergies emerging in the engineering and capital equipment sectors of our economy.

Many challenges lie ahead, but the provision of adequate capacity ahead of demand remains a key goal that we must strive for, so that customers receive efficient, world class service. Transnet's expansion programme has a huge contribution to make in lowering the cost of doing business in South Africa, and of enabling the global competitiveness of sectors such as mining, manufacturing and agriculture.

I hope the conference achieves its objectives, and I pledge my support in assisting with real implementation wherever there is a role for the DPE or government to play.

Thank you.

Issued by: Department of Public Enterprises
14 August 2008
Source: Department of Public Enterprises (http://www.dpe.gov.za)