South Africa is home to a number of innovators, creators and entrepreneurs. We boast the likes of Charlize Theron, Elon Musk, Nelson Mandela, Lebo Gunguluza, Raymond Ackerman, the Oppenheimers – the list goes on. Recently, the country has also seen a significant uptick in technology entrepreneurs. The ecosystem has evolved and although the fraternity requires more support, the efforts by particular parties such as Knife Capital, Kalon Ventures, alongside supportive corporate programmes such as Alpha Code, Standard Bank Incubator, Startupbootcamp, to mention only a few, has been commendable.
That said, many of the tech startups are struggling to secure success with a high failure rate. A variety of reasons are typically given for this failure. Those cited more often include: ran out of cash, founders lacking business acumen, too early for market, no market need, slow adoption or unwillingness to change. However, a South African female entrepreneur and founder, Benji Coetzee, founder of Emptytrips, has raised the issue of unfair markets being a killer to new businesses. Where state-owned monopolies are unwilling to collaborate or open the market to start-ups as the killer to innovation, and therefore a bottleneck to new jobs and inhibitor of economic growth.
Benji Coetzee, founder of Emptytrips, who has been applauded for her bold attempt to disrupt one of the most legacy ridden industries (Logistics) has started a movement to advocate for the privatization of Transnet Freight Rail (TFR), the state-owned rail operator. A monopoly she calls the Goliath. “Currently, as a start-up it is difficult to try enable the rail freight industry if you are fighting against a single Goliath that does not play fairly,” says Benji.
Economic theory indicates that monopolies are uncompetitive and a negative influence on free markets, with consumers typically paying the price. This is no different in the case of three South African monopolies, namely South African Airways, Eskom and Transnet Railways.
Benji notes that new government can unlock savings to small businesses via reduced transport costs, which frees cash for job creation and workforce stability. Economic growth is supported by small businesses and their ability to provide sustainable jobs, if their costs continue to rise with stagnating revenues they are unable to absorb current or more people, which leads to stagnation of jobs versus continued population growth. “Economics 101 – more people+ less / same number of jobs = unemployment conundrum! “
Benji has been privy to a variety of TFR’s unfair operational engagement processes and uncompetitive pricing methods, which she says is holding South Africa’s economy hostage. As many commuters are penalized with heavy toll fees, congestion and road damage, you may beg to ask why are so many container and bulk trucks still transporting long haul cargo if we have one of the most expansive rail networks on the continent?
Benji is of the opinion that If South Africa’s rail network system was more easily accessible (online) and capacity was more dynamically priced more companies would default back to the old and better ways of transport (rail).
“Currently cargo owners are frustrated. It is near impossible to get hold of a responsible person to book freight by rail, even to get a quote takes days if not weeks, sometimes with no response at all. Your luck is even more slim if you are not a large corporate. They simply only focus on their large take-or-pay contracted volumes and have disregard for the small to medium business enterprise.”
A survey conducted with customers of Emptytrips indicated a host of inefficiencies dealing with TFR; If a quote is provided, it is typically uncompetitive to road transport, as such more cargo moves by road due to the lack of customer centricity. Secondly, given that TFR barely operates on a schedule the predictability and volume balancing is near impossible. This either leads to a policy of “train runs when full” or mismatched volumes, i.e. under- utilised capacity – a cost to the economy over R6bn per annum.
The notion that privatizing the division of one of Africa’s largest state-owned monopolies could change South Africa for the better has some credibility, other than the economic theory of free markets:
Transnet owns more than 80% of the railway track in Africa, a continental Goliath.
Transnet Freight Rail, a division of Transnet SOC Ltd has reported positive profits and revenue growth over the preceding years – however, if you look at the volumes transported they have stagnated. This does not mean they are doing better, it means they are simply charging more.
By privatizing the rail network efficiencies and operational dogma will be unlocked, bringing the costs to operate down as well as opening the assets for higher utilization and yield.
TFR suffers from a host of allegations from corruption, bad management and sabotage. Other examples include “ghost trains” were container volumes are declared empty (attracting a lower carriage fee) when the containers are indeed carrying cargo – which means a middle man is profiteering off of the network at tax-payers expense.
The continued strategy of “Transnet International Holdings” is a vanity project. This initiative was set up by Siya Gama to try and expand TFR business into Africa but has been a failure. It should be remembered that Maria Ramos re-structured Spoornet in the early 2000s, and one of her first actions was to close “Spoornet Overborder” operations, and she was right to do so. Instead we continue to waste resources on this project with little consideration of what could make it work (e.g. cross-border multi operator booking portal).
“Round Trip” Rates – as EmptyTrips has shown, there is a huge potential to increase wagon utilization and yield by selling empty space in the existing fleet. However, the practical impediment to this is that TFR’s booking systems are set up on the “One Way Rate” system, i.e. clients are charged a rate to move freight from A to B and notionally move the empty wagon back from B to A. This is standard throughout the railway world. But to introduce a discounted rate to move cargo back in the same wagon from B to A is not possible on the existing computer booking systems, and would be open to abuse and corruption if TFR were to simply create a lower rate option from B to A (as bookers could use this rate for clients as a One Way Rate as the system currently cannot track returning empty wagons). From informed view, these sorts of backhaul subsidized freight deals are complex and could only be managed by private freight brokers – and hence this type of tariffing is best suited to the deregulated Staggers type environment.
“As Emptytrips, we developed Railfox and presented this to the team at Transnet as a collaboration or even as a potential JV. We were unfruitful in the discussions, which is a pity given that the platform can address a significant customer engagement issue and help Transnet rebuild a trusted brand. We are evangelists for rail, its environmental impact is what excites us. The socio-economic impact of efficient transport by sustainable affordable methods is far reaching to every consumers’ daily fuel levy. We should all be ambassadors for making rail great again! We need government to make some bold moves, time for change is now. We cannot have monopolistic Goliaths such as Transnet have a stronghold on our economy any longer. It hurts innovation, entrepreneurship, job creation and fair open markets.”
Emptytrips recently agreed a pilot project with Grindrod Rail and ABinBEv to transport beer by rail in containers to Lusaka with returning containers carrying commodities. Yet, when loading (after terms and agreements were made with TFR) TFR officials refused to allow the containers to be loaded. A signal of unwillingness to open potential with startups.
Benji hopes to create more evangelists to change transport for the environment whilst growing our economy fairly. South Africa’s extensive railway network is vastly underutilized and inefficient. Only a few of Transnet rail lines make a profit, regardless that their pricing has simply increased versus improving volumes. This loss is made despite a huge demand for alternative logistics and transport options. The inefficient management of the South African railway network has very much contributed to the overburdening of roads, as well as to the great amounts of interprovincial traffic.
In the words of Daniel Eloff an attorney and political commentator, “Ending this monopoly and opening the market brings new opportunities not only for South African businesses, but also for the South African people. We need to get South Africans on the move. We need to get goods moved around and to get our people to work. By getting more freight and traffic onto our rails we will reduce damage to our roads and highways.”
#share2care movement #privatisetransnet