Port charges in South Africa are constantly under intense review and examination by a wide variety of stakeholders, including the independent ports regulator. Transnet, as the operator and landlord of the majority of the ports in the country, accepts and welcomes this level of scrutiny. It allows us to independently and continuously benchmark our standards against international trends, enabling us to deliver superior value to our clients.
The World Bank’s 2015 “Doing Business in South Africa” report paints a variegated picture of how our ports function within the global milieu. Like many others, the report posits the narrative that South African ports are among the most expensive in the world. What most protagonists of this view always fail to disclose is that this is only true in relation to the cost of container imports and exports. The South African port costs levied on bulk commodities and shipping lines have been found to be far below the same benchmarks.
It is difficult to do full justice to this complex and crucial debate without acknowledging the fundamental difference between funding models of South African ports with those of our peers. No single port charge can be accurately compared across the world purely by its quantum.
Port pricing structures differ in various jurisdictions and even sometimes within the same port or port system, depending on the role of the port authority and the terminal operator. As a result, the benchmarking of ports and their pricing system is an art and not a science.
What the majority of studies fail to appreciate is that most ports we are benchmarked against in these studies receive significant subsidies for infrastructure investments, depending on their ownership model. This varies from direct cash injection from the national or state or provincial fiscus or municipal financing. As an example, in the US ports system, waterside capital investment such as capital dredging and the development of breakwaters and approach channels are undertaken by the US Corps of Engineers – a state entity.
Self-funding
Benchmarks reveal that, apart from Taiwan and South Africa, other ports have systems where government finances the maritime infrastructure. This amount can be fairly significant in value as this is core infrastructure. When making the unit cost comparison, and assuming efficient markets, one must adjust for purchasing power parity, as well as adjust down the unit cost of the subsidy, to arrive at a comparable benchmark. This inevitably is never done.
Unlike our peers, Transnet is entirely self-funding and we have to raise debt funding and revenue to execute investments of R336 billion, of which R90bn is dedicated to upgrading and expanding the ports system. We are, therefore, solely responsible for investments in waterside and landside port infrastructure. To strengthen the capability of our developmental state and to meet South Africa’s extensive industrial needs, we need a strong logistics network to catalyse economic growth.
Independent studies conducted by top-pricing specialists in the world have concluded that if private container terminal operators operated in South Africa, with the same constraints and requirements, prices would be approximately 30 percent higher than now. Therefore, to conclude generally without looking at other aspects of port costs, that the South African port system is the most expensive, is premature.
Transnet has in the past six financial years implemented tariff adjustments that are below inflation, effectively slashing cost in real terms. This included a once-off R1bn discount to exporters of containers and automotives. Further, we have proposed to the Ports Regulator a new tariff structure to address the anomaly where manufactured goods subsidise primary exporters and vessel owners. This results in higher charges for containers and for automotives and lower charges for dry bulk.
Rebalancing act
The key pillars of our proposal are cost recovery, user pays, required revenue and competitiveness.
We are phasing in the new approach and it is already yielding lower cargo dues for containers and automotive exports. This process, however, will take some time as we rebalance the port system pricing philosophy. This is in order to avoid inflationary short-term shocks in services and commodities, where there is under-recovery, while working on lowering those which are deemed to be higher.
In terms of productivity and efficiency in our ports, Transnet has had a number of sustainable successes. Both the iron ore and manganese terminals in Saldanha and Port Elizabeth, respectively, are operating at above international standards. This is confirmed by customers who are major global players. Transnet has also recently upgraded its manganese export capacity out of Port Elizabeth, in a significant capital investment and efficiency drive.
The performance of our container terminals remains a major focus for the company. Over the last two years we have been working with industry, customers and with the shipping lines to improve performance. In Cape Town, Port Elizabeth and Ngqura, vessels berth on arrival and our productivity targets are in line with similar international operations around the world. Customers are recognising the strides we are taking. The Pier 2 Container Terminal in Durban was ranked the most efficient on the continent by one of our major clients.
Finally, I wish to point out that Transnet is in regular discussion with relevant stakeholders to ensure that the system works cohesively. Working together, we can drive change towards an efficient and competitive port system for South Africa and the region. We need calm heads to navigate the reform processes required to create a world-class system that enables trade to flourish on a sustainable basis.
* Siyabonga Gama is the acting group chief executive of Transnet.
** The views expressed here do not necessarily represent those of Independent Media.
Business Report