Transnet Turns to Retailers, Manufacturers as Commodities Falter

Johannesburg, South Africa, Capital Markets in Africa: South Africa’s state rail and ports operator is considering entering new businesses, including warehousing and pitching its services to retailers and manufacturers, as it seeks to boost income and reduce its reliance on transporting coal and iron ore.

Transnet SOC Ltd. plans to increase the volume of consumer and manufactured goods on its rail lines and may add distribution operations, Chief Executive Officer Siyabonga Gama, 48, said on Wednesday. While more than 70 percent of the utility’s rail business is focused on the mining industry, that will eventually need to drop below half, he said.

“At the moment we are playing in very limited spaces,” Gama said in an interview at the World Economic Forum on Africa in Kigali, Rwanda’s capital, on Wednesday. “We need to look at new sources of income.”

The prices for coal and iron ore, Transnet’s two main export commodities, have fallen by more than 30 percent over the past two years and producers are responding by deferring planned investments, Gama said. The company sees opportunities to tap existing assets and capabilities to expand the types of services it offers, he said.

Transnet has invested in train equipment and systems that will enable the utility to reliably transport time-sensitive goods and service industries that work with smaller shipment sizes, Gama said. There are opportunities to carry goods for local retailers like Pick n Pay Stores Ltd. and Woolworths Holdings Ltd. that are trucked by road, he said.

“My sense is that we have a value proposition that could save them quite a lot of money,” said Gama. The executive, who was previously head of Transnet’s freight-rail unit, was acting CEO of the group for about a year until his position was made permanent last month.

Transnet is looking at developing warehousing and sorting facilities on properties it already owns, either alone or with partners already operating in that sector, he said. It may also sell surplus real estate.

The company also sees opportunities to develop liquefied natural-gas distribution infrastructure along South Africa’s coast to feed gas-to-power projects, Gama said.

“We think we could play an infrastructure, and an operator, role in some of that,” he said. “But in partnership with the private sector, it’s not things we would want to do on our own.”

Transnet is also seeking to expand its business in Africa outside of its home market, and sees opportunities for contracts in rail, ports and pipeline projects across the continent, he said.

“All of the things that made us great, the context has changed,” Gama said. “We are creating a Transnet that is going to be a lot more agile.”

Source: Bloomberg Business News