Port terminal operations cost contribution to the supply chain

Heading heading heading Date

Transnet Port TerminalsContribution to the Supply Chain Cost

- 3 September 2015

22

• Introduction

• Transnet SOC Ltd

• TPT’s Contribution to SC Cost

• McKinsey report on SA’s Big 5 Bold Priorities for Inclusive Growth

• Transnet’s Market Demand Strategy

• World Bank’s Report on Doing Business Across Borders

• University of Antwerp ITMMA and Gain’s report on Sea Transport

• International Terminal Handling Charges from Hamburg Süd website

• Ports Regulator Global Port Pricing Comparator Study

• Conclusion

PAGE

TRANSNET STATE OWNED COMPANY LTD

33

PAGE

Sishen

Mosselbaai

LESOTHO

Johannesburg

Gg

Port Nolloth

TRANSNET OPERATES AN INTEGRATED PORT,

RAIL AND PIPELINE NETWORK

4

SaldanhaBulk (Export iron ore),

Breakbulk

Cape TownContainers,

Breakbulk

NgquraContainers

East LondonContainers, Breakbulk, Agri-Bulk, Automotives

Richards BayBulk (Export coal, magnetite, Chrome), Breakbulk

DurbanContainers, Breakbulk, Agri-Bulk, Automotives

Port ElizabethContainers, Breakbulk, Bulk, Automotives

20,500 Km Rail Network220 Million Tons of cargo4.7 Million TEU 18 Billion Liters of fuel

Port Infrastructure

• 18 container berths

• 5 automotive berths

• 27 dry bulk berths

• 37 break bulk berths

• 16 liquid bulk berths

4

5

OUR TERMINALS

TRANSNET PORT TERMINALS

16 Port Terminals across South Africa:- 4 Container Terminals with a total of 8m TEU capacity

(96% market share)- 3 Bulk Terminals with 89m Tonnes combined capacity

(52% market share in dry bulk – 0% liquid bulk)- 3 Automotive Terminals (100% market share of newly build)- 6 Break-Bulk Terminals with 19m Tonnes capacity

(69% market share)

5

6

PORT OF DURBAN

Third busiest port in Africa

in terms of container

through-put.

58 Berths. 40 commercial

vessels berthed at any given

time.

Busiest port in Africa in terms of vessel calls

(4000+ pa).

80 million tons of cargo

60% of all container

imports and exports

through the port of Durban

120,000 Trucks,

140,000 Cars and 200,000 Pedestrians

pm

Durban is SA’s second most

important economic complex

Total land and water area of

1 854 ha.

The distance around the

port is 21 km. Rail tracks

total 302 km

Third busiest container port

in the Southern

Hemisphere

Focus on Containers, Cars, Liquid

Bulk and Cruise

Industry 6

7

WHAT MUST SA DO TO REVERSE THE TRENDS

7Source: McKinsey report on SA’s Big 5 Bold Priorities for Inclusive Growth Sept 2015

South Africa is in the top quarter of countries in the world in terms of

ease of doing business. (Positioned 43rd out of 189 countries).

8

WHAT MUST SA DO TO REVERSE THE TRENDS

8Source: McKinsey report on SA’s Big 5 Bold Priorities for Inclusive Growth Sept 2015

9

HOW TO IMPROVE SUPPLY CHAIN INFRASTRUCTURE

9Source: TPT Growth Strategy, Market Demand Strategy.

10

HOW TO IMPROVE SUPPLY CHAIN INFRASTRUCTURE

10Source: TPT Growth Strategy, Market Demand Strategy.

11

COMPETITIVE SUPPLY CHAIN

11

How did companies cut Supply Chain Costs in the past?

• Cut Headcount

• Close Offices/Locations

• Consolidate

• Reduce Benefits

Global trends indicate that there has been a shift in competition from competitive

advantage (where ports could compete on strategic location and country’s factors of

endowments) to competitive supply chain (globalization has made it possible to

source goods from anywhere in the world).

12

HOW TO REDUCE SUPPLY CHAIN COST

12

What are the options for TPT as State Owned Company?• Supply Chain Risk Management Assessment• Work with Suppliers on cost reduction• Eliminate waste (actual waste such as energy and non-value added-activities)• Technology (Intelli-Port)• Business Process Improvement (Lean, Six Sigma)• Logistics cost and efficiency (sea freight time vs. cost, container load percentage)• Best people, procedures, communication

TPT also recognises that time is a cost. Our investment in Durban's Container Terminal

has seen it ranked as Africa's most productive port by a major shipping line calling our

ports. The same report ranks Maputo as 31st.

Source: TPT Growth Strategy, Market Demand Strategy.

14

THE COST OF EXPORTING 1 TEU CONTAINER

from Johannesburg to Rotterdam according to the World Bank

14

According to the World Bank report on trading across borders found at

http://www.doingbusiness.org/data/exploreeconomies/south-africa/trading-across-

borders/

only $285 of the $1,830 it costs to export a Twenty Foot container from South Africa is

related to port authority’s fees and terminal operators’ terminal handling charges

combined.

No single port charge can be accurately compared purely by its name, but the World

Bank’s report is generally accepted as a standard across the world comparing the cost

of exporting a single container from the countries’ economic hub to its major port.

Source: http://www.doingbusiness.org/data/exploreeconomies/south-africa/trading-across-borders/

PRICING: COMPONENTS OF TOTAL CONTAINER

SUPPLY CHAIN COSTS

Transnet’s cost contribute only around 15.6% to total supply chain cost. The World Bank’s

calculation includes all fees charged by government agencies and the private sector to a trader in

the process of exporting/importing goods.

- The charge for completion of documentation (19.4%) is more than what Transnet charges

for bringing a ship into port, off-loading it’s contents, storing it for 3 days and loading it on a

train or truck for transport.

- Customs fees constitute about 5% of total supply chain costs

- Transnet’s contribution to supply chain cost consist of:

- Cargo dues by the port authority (9%) for bringing a ship into port, mooring it and

taking it safely back out to sea

- Port Terminal charges (6.6%) for lifting a container off a ship, moving it into a stack,

storage within the port terminal for 3 days and loading it onto a train or truck.

- Inland transportation and handling from Gauteng (60%) is 4 times as much as port costs

15Source: http://www.doingbusiness.org/data/exploreeconomies/south-africa/trading-across-borders/

16

WORLD BANK REPORT


at an exchange rate of R11.20

Documents

preparation

Customs

clearance and

inspections

Port's Cargo

Dues

Terminal

Handling

Charge

Inland

transportation

and handling

Total Supply

Chain Costs

$355 $90 $165 $120 $1 100 $1 830

R3 977 R 1 008 R 1 848 R 1 343 R 12 320 R20 496

19.4% 5% 9% 6.6% 60%

PRICING: PORTS AND TERMINAL HANDLING COST

17

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Port and terminal handling cost contribution (%) of supply chain costs (excluding sea transport)

Exports Imports Average

Relative to other countries in the world, South Africa resides on the LOWER

AVERAGE with respect to total port costs relative to total supply chain costs

It is expensive to trade with South Africa, but port costs are not the largest component

of the total supply chain costs

Source: http://www.doingbusiness.org/data/exploretopics/trading-across-borders

Total port and handling costs relative to the total supply chain costs

27.5%

15.6%

18

WORLD BANK REPORT ON COST OF DOING BUSINESS


0

100

200

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$323 ave$285

Total Port charges from TNPA and TPT combined are ~12% lower

than the average charged by other Ports across the world.

19



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$140

$323 ave$285

China:Fully government funded port development, economiesof scale



20



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$323 ave$285

Europe:Significant government grants and pricing based on depreciated assets

$260

$315 $300$310$345



21



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America:Financially self funded

$400



22



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$323 ave$285

South Africa:Financially self funded



23

TRADE WITH SA IS EXPENSIVE DUE TO DISTANCE

FROM WORLD MARKET

23Source: Update by GAIN on 8 Dec 2014 of a graph done originally in 2009 by Dr Theo Notteboom from

the University of Antwerp ITMMA

24

WORLD BANK REPORT


Combined with Dr Theo Noteboom’s report

Documents

preparation

Customs

clearance and

inspections

Port's Cargo DuesTerminal Handling

Charge

Inland

transportation

and handling

Sea-leg from

Rotterdam to

Durban

Total Supply

Chain Costs

$355 $90 $165 $120 $1 100 $3 321 $5 151

R 3 977 R 1 008 R 1 848 R 1 343 R 12 320 R37 202 R 57 736

6.9% 1.7% 3.2% 2.3% 21.4% 64%

25

TERMINAL HANDLING CHARGES

25

0

50

100

150

200

250

300

350

400

450

THC ($ per TEU)

Source: Terminal Handling Charges from Hamburg Süd’s website http://ecom.hamburgsud.com/

$215 ave

$132

According to a data published on the website of shipping line Hamburg Sud, the terminal

handling costs in Durban are among the lowest in the world.

The comparison shows that Durban terminal handling charges are the seventh lowest in the

world of the ports serviced by the shipping line.

26

PORTS REGULATOR GLOBAL PORT PRICING

COMPARATOR STUDY

26

For years Transnet has been on the receiving end of undue criticism in the press after a report issued by the Ports Regulator in 2010 regarding Transnet’s tariffs.

A statement by the ports regulator in April 2012 refers to people using the information in the previous report to drive their own agenda’s.

“It is concerning that previous studies that had been published by the Regulator were almost invariably treated in the following way:

• Quoted out of context• Over-emphasis was placed on the prices that were higher than global averages

and those lower than global averages were ignored• Copied without appropriate citation and used as “research” by third parties• Not assessed in a sufficiently nuanced manner that allowed correct

interpretation of the findings

Source: Ports Regulator Global Port Pricing Comparator Study of 1 April 2012.

28

SOUTH AFRICA’S PORTS ARE AMONGST

THE CHEAPEST IN THE WORLD

28Source: Ports Regulator Global Port Pricing Comparator Study – 01/04/2012

29

CARGO DUES LESS THAN GLOBAL AVERAGE

29Source: Ports Regulator Global Port Pricing Comparator Study – 01/04/2012

All vessels face much lower overall costs in RSA ports than the averages in the study, ranging from 26% below the global norm in the case of containers and 57% for iron ore vessels.

36

CONCLUSION

36

South Africa is in the top quarter of countries in the world in terms of ease of doing

business. (Positioned 43rd out of 189 countries).

Transnet has been lambasted in the press for years creating the perception that our

ports are amongst the most expensive in the world. This is simply not the case. What is

true is that it is fairly expensive to do business from South Africa due to the distance

from international markets.

Total supply chain cost includes the cost of documentation, customs, road transport and

sea transport. The cost of transport, both on land and at sea outweigh port costs by far.

Transnet’s port charges contribute only ~15.6% of total supply chain costs.

Terminal Handling Charges levied by TPT are ~35% less than THC charged on average

charged by the majority of International Terminal Operators. Total Port charges from

TNPA and TPT combined are ~12% lower than the average charged by other Ports across

the world.

Source: http://www.doingbusiness.org/data/exploreeconomies/south-africa/trading-across-borders/

37

COLLABORATION

37

The key ingredients of effective, efficient

and competitive supply chains are

communication, transparency and

collaboration

38

TABLE OF AUTHORITIES

38

Hamburg Süd website November 2014

World Bank report on Port Charges in Cost of Doing Business study

Ports Regulator’s report on Port Authority charges done (2012)

Study by New Zealand Business Roundtable on Port Terminal Productivity (2012)

Cost of sea leg transport done by GAIN from the University of Stellenbosch (Dec 2014)

Distance from Source Dr Theo Notteboom from the University of Antwerp (2009)