REVIEW OF THE NATIONAL FREIGHT

LOGISTICS STRATEGY (NFLS) 2005

Introduction to the Review Process

2 July 2015Transport Forum

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CONTENTS

1. Problem statement 2005

2. Background

3. Purpose of the NFLS 2005 review

4. Objectives of the Freight Transport Systems

5. Strategic issues

6. Current challenges

7. Status Quo Rail

Road

Rail Road Split

Maritime

Air Cargo

Pipeline

Corridors

8. Project process to date

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In the executive summary of the NFLS document (2005), the overarchingdeficiencies in the freight logistics systems were identified as follows:

the freight system’s inability to fulfil the demand for cargo movements atprices, levels of service, quality of service and acceptable levels ofreliability in a manner that supports the National DevelopmentStrategies.

This failure stems from an inappropriate institutional and regulatorystructure that does not punish inefficiency and reward efficiency.

It is structural and incapable of appropriately allocating external costsand raising efficiency. Although elements of the system, such as thenational road network, are of a high standard and even surpass thosefound in some developed economies,

it is the system level performance and state of infrastructure that needsattention.

Improvement can only be achieved by an integrated system-levelapproach.

This strategy signals a shift toward demand-driven delivery of freightlogistics services rather than a supply approach”.

PROBLEM STATEMENT 2005

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1. NFLS 2005 as adopted by Cabinet became the first nationalstrategy that took into cognisance the challenges of theSupply Chain System in its entirety and sort to rectify theshortcomings with strategic interventions which would cutacross the industry.

2. To date DOT together with Freight sub sector have attemptedto implement NFLS proposals, this was not withoutchallenges.

3. With all the unique challenges in the different modes oftransport, within government and in the sub sector ingeneral the DoT now seeks to review the NFLS 2005 in anattempt to achieve the objectives of the Freight industrywhich are the seamless movement of goods and services.

BACKGROUND

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Analyse NFLS 2005 implementation, shortcomings and challenges Identify gaps with the NFLS 2005 Examine challenges with NFLS 2005 implementation Alignment with Government strategies, NDP2050 and National

Growth Path Develop an internationally appropriate NFLS (international best

practise) The potential of South to South movement (transhipment) Review the status quo of the different freight modes Develop an all- inclusive strategy taking into cognizance all modes

of transport, international bench marking, institutionalframeworks to cater for the industry, roles and responsibilities,intermodal interface, amongst others

Propose tangible strategic interventions Develop an implementation plan

PURPOSE OF THE NFLS 2005 REVIEW

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Meet demands of industry and economy Optimised total cost-effectiveness Obviate cost distortions and optimise competition Reduce negative externalities, safety, pollution,

congestion and infrastructure damage. Promote national global industrial competitiveness Attract international investment Actively build skills and capacity at all levels Optimise use of resources – land, facilities, and

infrastructure Develop sustainable systems and operations Intermodal interface Intergovernmental spatial planning

OBJECTIVES OF THE FREIGHT TRANSPORT SYSTEMS

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Institutional arrangements Regulatory framework Operations Environmental and safety issues Back to Rail Strategy Funding Cost of doing business Turn around times Access to the industry (new entries) Alignment to other government policies,

plans and strategies Training and skills development

STRATEGIC ISSUES

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Road transport operators and operations quality

Lack of general rail freight capacity

Need for rail investment and competition

Need for integration of ports, cities and industry

Need for improved communication and planning with private sector

Need to restructure freight transport authorities

Need for system integration between authorities

Need for skills and capacity building institutions

Need for competent change management

Need for executive commitment to change

Need increased managerial accountability for results

Need to combat corruption and collusion

Flawed institutional arrangements within government

Regulatory framework not efficient

Lack of information

CURRENT CHALLENGES

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RAIL

ROAD

RAIL ROAD SPLIT

MARITIME

AIRCARGO

PIPELINE

CORRIDOR

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STATUS QUO

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11

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COALLINK LINE

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OREX IRON ORE LINE

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APPROXIMATE TONNAGE OF EXPORT AND GENERAL FREIGHT ON RAIL (Million tons)

0

10

20

30

40

50

60

70

80

RAIL

COALLINK 0REX GENERAL FREIGHT BUSINESS(GFB)

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Economics Totally demand driven - demand drives growth – but also lowers quality

Operations: (30% Hire – 70% Own Account) Proportion owner-driver / truckers - proportion of “tied” truckers Total freight cost = Operations costs + public costs - roads/enforcement - emergency

services and other

Quality No entry qualification to industry - No operator licence No operator register and records No Responsible Competent Persons

- Skills deficiencies – Drivers, mechanics, enforcement, management- 65% of vehicles unroadworthy- Overloading- Environmental- Enforcement- Decriminalisation- PPP monitoring agencies- RTMS

Externalities Road user cost recovery - costs accrue to industry [not transporters]

Road usage - payments systems Accidents - safety, monitoring, investigation

RSA ROAD FREIGHT ISSUES

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18

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VEHICLE TEST

STATIONS/EQUIPMENT/P

ROCEDURES

ABNORMAL AND

AWKWARD LOADS

OPERATOR

REGISTRATION SYSTEM

DRIVER LICENCE

FORMAT

WEIGHBRIDGE STDS,

MANAGEMENT,

ASSIZING

1. LEGAL ENTITY

REGISTER

ABNORMAL LOAD

PERMIT2. VEHICLES REGISTER DRIVER VISA/CROSS-

WEIGHBRIDGE

OPERATIONS

3. DRIVERS REGISTER BORDER PERMITS MANAGEMENT

4. COMPETENT PERSONS

REGISTER

VEHICLE FITNESS ROAD

WORTHINESS STDS

HAZARDOUS AND

DANGEROUS

GOODS

5. OFFENCES REGISTER

PROFESSIONAL

DRIVER STDS :

ACCREDITATION

WEIGHBRIDGE

CERTIFICATE

6. ACCREDITATION

HAZMAT 7. VOLUNTARY TRAINING STRATEGIC

LICENCE COMPLIANCE COMPETENT NETWORK OF

PERSONS WEIGHBRIDGES

ROAD SIDE INSPECTIONS

STDS/PROCEDURES

THIRD PARTY MV

INSURANCE

RESPONSIBLE WEIGHING

ROAD SIDE INSPECTION

CERTIFICATE

ROAD USER &

CROSS-BORDER

CHARGES

COMPETENT PERSONS

RECORDS BY

TRANSPORT

OPERATOR

VEHICLE OVERLOAD

CONTROL

STANDARDS, AXLE

LOAD LIMITS,

BRIDGE FORMULA,

LAW ENFORCEMENT - STD OPERATING PROCEDURES - COMMON SCHEDULE

OF OFFENSES/FINES

VEHICLE REGULATIONS

AND STANDARDS

GUIDELINES

OPERATIONAL

REGULATIONS

DRIVER TRAINING:

TESTING & LICENCING

VEHICLE EXAMINERS

TRAINING AND

CERTIFICATION

CERTIFICATE OF

VEHICLE FITNESS/ROAD

WORTHINESS

ROAD TRANSPORT REGULATORY FRAMEWORK

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21

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

MODES

FREIGHT TRANSPORT VOLUMES

ROAD-URBAN DISTRIBUTION

ROAD - RURAL AND PROVINCIAL

ROAD - CORRIDORS

RAIL FREIGHT

PORTS CARGOES

PIPELINES

AIR CARGO

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ESTIMATED ANNUAL TONS OF FREIGHT TRANSPORTED ON CORRIDORS BY RAIL AND ROAD (2013)

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Corridor CORRIDOR NAME

ROAD

TONS

RAIL

TONS ROAD % RAIL % FREIGHT COMMODITIES

N3 GAUTENG - DURBAN 44.0 24.0 64.7% 35.3% Containers, Steel, Cars, Coal, Manganese, Fuels, Perishables

N1 SOUTH GAUTENG - CAPE TOWN 17.0 14.0 54.8% 45.2% Cars, Grains, Containers, Perishables, Cement, Steel

N1 NORTH GAUTENG - MUSINA 11.0 4.5 71.0% 29.0% Foods, Fuels, Vehicles, Cement, Perishables, Beverages

N4 WEST GAUTENG - TLOKWENG 4.5 2.0 69.2% 30.8% Fuels, Cement, Containers, Vehicles, Foods

N4 EAST GAUTENG - RESSANO GARCIA 6.6 7.0 48.5% 51.5% Mineral ore, Fruit, Sugar, Timber, Cars, Paper

N7 CAPE TOWN - NAMIBIA 1.8 0.0 100.0% 0.0% Fish, Containers, Fertiliser, Cement, Machinery

N2 SOUTH CAPE TOWN - PORT ELIZABETH 7.0 0.3 95.9% 4.1% Cars, Fuels, Fruit, Perishables, Steel, Tyres

N2 NORTH EAST LONDON - DURBAN 8.1 0.0 100.0% 0.0% Beverages, Foods, Fuels, Cars

N2 NORTH DURBAN - PONGOLA 7.7 5.2 59.7% 40.3% Containers, Fuel, Chemicals, Timber

N5 WINBURG - HARRISMITH 6.5 0.0 100.0% 0.0% Maize, Livestock, Perishables, Steel, Containers

N14 GAUTENG - UPINGTON 3.0 0.7 81.1% 18.9% Foods, Cement, Steel, Machinery, Vehicles, Perishables

N6 EAST LONDON - BLOEMFONTEIN 3.1 1.6 66.0% 34.0% Vehicles, Steel, Grains

N9 GEORGE - COLESBURG 1.0 0.0 100.0% 0.0% Fuels, Grain, Perishables

N10 BRITSTOWN - NAKOP 0.8 0.7 53.3% 46.7% Foods, Cement, Steel, Machinery, Cars, Perishables

N11 LADYSMITH - GROBLERSBRUG 6.9 0.0 100.0% 0.0% Foods, Cement, Steel, Machinery, Vehicles, Perishables

N12 GAUTENG - BEAUFORT WEST 5.0 0.0 100.0% 0.0% Cars, Grains, Containers, Perishables, Cement, Steel

N17 GAUTENG - SWAZILAND 5.6 0.0 100.0% 0.0% Beverages, Cement, Coal, Cars, Grains, Sugar

N8 THABA NCHU - MASERU 1.3 0.0 100.0% 0.0% Containers, Fuels, Cement, Grains, Coal, Foods

COALLINK ERMELO - RICHARDS BAY 0.0 78.0 0.0% 100.0% Coal, Steel, Timber, Chrome

OREX SISHEN - SALDANHA 0.0 62.0 0.0% 100.0% Iron ore, Lead

140.9 200.0 41.3% 58.7%

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Commodity

Characteristics Commodities

Annual

Volumes

(mill tons

p.a) Typical origins Typical destinations

Primary reason for

modal choice Rail Road

Rail Road mtpa mtpa

Bulk - Coallink export coal 78 Mines Ports 100 0 Full rail facilities 78 0

Bulk - Orex export iron ore 61 Mines Ports 100 0 Full rail facilities 61 0

Bulk - GFB local coal 20 Mines Powerstations 60 40 Some rail facilities 12 8

local iron ore 6 Mines Foundries 70 30 Some rail facilities 4.2 1.8

local coal 3 Mines Factories 50 50 Few rail facilities 1.5 1.5

other minerals 13 Mines Foundries/ports 60 40 Some rail facilities 7.8 5.2

other minerals 4 Quarries Smelters 60 40 Some rail facilities 2.4 1.6

other minerals 3 Smelters Ports 80 20 Some rail facilities 2.4 0.6

Clinker 4 Quarries Factories 80 20 Some rail facilities 3.2 0.8

fuel/chemicals 2 Plants Ports 60 40 Some rail facilities 1.2 0.8

fuel/chemicals 2 Plants Factories/retailers 0 100 Some rail facilities 0 2

steel 2 Foundries Ports 50 50 Some rail facilities 1 1

timber 10 Forest mills /ports 30 70 Some rail facilities 3 7

Other 10 Port/plants ports/plants 80 20 Some rail facilities 8 2

TOTAL BULK 218 Million tons p.a. 185.7 32.3

steel 1 Foundries Wholesaler 1 100 No rail facilities 0.01 1

cars 1 Ports/Plants Ports/ Plants 40 60 Few rail facilities 0.4 0.6

cars 1 Ports/Plants Retailers 20 80 No rail facilities 0.2 0.8

containers 6 Ports/Terminals Plants/terminals 30 70 Few rail facilities 1.8 4.2

containers 8 Ports/Terminals Factories 10 90 No rail facilities 0.8 7.2

chemicals 20 Factories Users 0 100 No rail facilities 0 20

fuel 30 Plant Retailers 0 100 No rail facilities 0 30

agric prods 140 Farms,silos Farms / Mills 20 80 No rail facilities 28 112

industrial goods 600 Ports/factories User industries 0 100 No rail facilities 0 600

FMCG 500 Processors Wholesale/retail 0 100 No rail facilities 0 500

beverages 120 Plants Wholesale/retail 0 100 No rail facilities 0 120

packaging 80 Plants factories/processors 0 100 No rail facilities 0 80

Construction 20 Suppiers Sites 0 100 No rail facilities 0 20

Building 20 Suppiers Sites 0 100 No rail facilities 0 20

Retail 20 distribution stores 0 100 No rail facilities 0 20

TOTAL BREAK BULK 1567 Million tons p.a. 31.21 1535.8

TOTAL LAND FREIGHT 1785 Million tons p.a. 216.91 1568.1

Modal Choice %

Mixed

Casual

Break bulk

25

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

TE

Us

YEAR

CONTAINERS HANDLED ALL RSA PORTS (2003-2013)

TOTAL LANDED

TOTAL SHIPPED

TRANSHIPPED

TRANSHIPPED

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27

28

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

TO

NS

YEAR

ALL PORTS RSA - IMPORT AND EXPORT PACK CODE (2003 - 2013)

TOTAL BULK LANDED

TOTAL BULK SHIPPED

TOTAL BREAKBULK LANDED

TOTAL BREAKBULK SHIPPED

TOTAL CARGO LANDED

TOTAL CARGO SHIPPED

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30

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Domestic air cargo capacity was reduced when SAA changedto narrow bodied air craft in about 1993, and is now mainlyluggage carried in belly holds of passenger aircrafts.

Domestic airfreight for import and export is mainlytransported by road to OR Tambo.

The precise tonnage of air cargo is not known as there are noofficial records or sources of statistics

International air cargo has reduced significantly from about500,000 tons p.a. to the current estimate of about 300,000tons

The reduction has been due to reduction in manufacturing(and therefore the need for imported components); as wellthe severe reduction in exports of clothing, shoes, textiles,automotive components and electrical equipment due toimport competition.

CHANGES IN THE AIR CARGO MARKET FROM 2005 - 2015

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NATIONAL MULTI-PRODUCT PIPELINE SYSTEM (NMPP)(FINAL CONFIGURATION WITH ALL 5 PHASES COMPLETED (2030)

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Pipelines transport about 17 billion litres of petroleum fuelproducts p.a.

Equal to 850 road tankers per day or 8,5km long train of tankersper day.

Transnet pipeline transports about 50% of the SA refined productfuel requirements and 70% of the Gauteng requirements.

Transnet pipeline transports 100% of the inland Natref Refinery’scrude oil.

Approximately 80% of O.R. Tambo International Airport’s jet fuel.

Methane rich gas (MRG) supplied to industrial customers inNewcastle, Richards Bay and Durban areas.

PIPELINE VOLUMES

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OVERVIEW OF THE SELECTED BORDER POSTS

ESTIMATED ANNUAL TONS TRANSPORTED BY ROAD ON SOUTH AFRICAN IMPORT-EXPORT

CORRIDORS

Beit Bridge 2,856,672

Lebombo 1,566,252

Kopfontein 1,647,720

Skilpadshek 1,051,812

Maseru Bridge 573,048

Oshoek 1,324,692

Groblersbrug 1,642,968

10,663,164

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The project set up and the task team composition hasbeen defined

A preliminary identification of issues has been done

A process of engagement with transport users andindustries has been initiated

A broader stakeholder consultation will take place oncethe modal review has been completed

Presentation to Interdepartmental Task Team on FreightLogistics - 16 April 2015

PROJECT PROCESS TO DATE

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