Searching for rail market spaces in the high-value freight market

Research note - 19 February 2025

Research by GAIN Group
Jan Havenga, Zane Simpson, Anneke de Bod, Stefaan Swarts, Henk Neethling, Werner van Greuning

Introduction

This research analysed the link (or rather the missing link) between freight transported by rail and the value of this freight in the South African market. The authors’ prior research, based on freight demand modelling data from the Freight Demand Model™ for South Africa (FDM™), revealed that the country’s freight railway system mostly competes in the low-value market only. While this is still widely believed to be true, it is important to update previous calculations of freight rail volumes, flows, market share and value to better understand the current situation to ensure evidence-based, macrologistics strategy and decision-making.

Macrologistics refers to the strategic management of a country’s supply chains to support the attainment of macroeconomic goals. These goals often focus on supply chain cost reductions to increase the competitiveness of industries, but could also include guiding spatial development, creation of local beneficiation clusters and upliftment of rural economies, to achieve the lowest cost of ownership (considering all production factors) of an economy (Havenga, 2018). The macrologistics prerequisite for informing the inherent trade-offs underlying these macroeconomic goals is the estimation of granular freight flows based on an understanding of disaggregated commodity-level volumetric supply (origins) and demand (destinations) in the economy (Havenga, Witthöft & Simpson, 2022).

Transnet is a state-owned entity that owns and operates South Africa’s rail infrastructure (Havenga, Simpson, Neethling, de Bod & Swarts, 2023:1). The interim Infrastructure Manager (TRIM) is the agency that manages the rail network infrastructure, while TFR is the operating company that is often called TFROC. While TFR moves significant freight rail volumes (i.e. tonnes), the relative value of this freight is low. The rail market share of valuable freight is, therefore, low – i.e. most valuable freight is not utilising or being serviced by freight rail transport services. This situation is particularly worrisome given that the South African economy requires a larger rail market share of its high-value freight market to grow. While TFR has not operated in the high-value market historically, there is a clear opportunity for rail freight transport services to be inserted into this market.

 

Background

In 2008, the authors analysed the link between freight transported by rail and the value of this freight in the South African market for the first time. The original view of total freight volumes, their value, and freight rail volume flows – according to FDM™ data for the 2008 base year – is provided in Figure 1. This research revealed that South Africa’s freight railway system mostly competes in the low-value market, a fact which is still widely believed to be true.

 

Figure 1: Original view of freight rail volume and value in 2008 (FDM™, 2008)

 

The authors further analysed this link when they updated the 2008 view to include insight related to the value of freight transported by rail according to FDM™ data for the 2011 base year (see Figure 2).



Figure 2: Revised view of freight rail volume and value in 2011 (FDM™, 2011)

 

Research approach

Freight demand modelling is used to determine the tonnage, tonne-kilometre, and value (in South African Rands) gap between current and target market shares for rail-friendly freight in South Africa’s high-value freight market. This modelling data is provided by the FDM™ for South Africa, which has been updated annually from 2006 up to 2019, with the latest FDM™ being updated for 2022 base year data. The FDM™ estimates the sectorally disaggregated supply (production and imports) and demand (intermediate domestic demand, final domestic demand and exports) of commodities in predefined geographical areas, the aggregate of which reflects total supply and demand for the country. A more technical description of the model is available in Havenga (2007:160–179), Havenga (2013), Havenga and Simpson (2018), and Havenga, Witthöft, de Bod and Simpson (2020:138–172).

The data outputs of the FDM™ quantify freight volumes and rail potential, from the modelling of drivers and inputs in market growth. These outputs enable a detailed understanding of rail market share, which is used to determine rail-friendly freight through a freight flow segmentation approach that was first published by Havenga (2012). This approach considers the total freight transport market to ensure that rail objectives are not only understood in terms of the total market but also refined in terms of specific market segments. Tonne-kilometre is used as the key market share metric in this paper, with one tonne-kilometre representing the transport of one tonne over one kilometre. Since tonne-kilometre takes both tonnes shipped and the distance shipped into account, it is a preferred metric over tonnes. Additionally, freight transport refers to the total movement of goods using inland transport on a given network. The rail freight density principle, which was first published by Harris (1977), remains relevant today and is, therefore, instrumental in defining and determining rail market share. The density of a freight railway system is sufficient if it covers its fixed and operating costs or if it is sufficiently subsidised, which responds to social and environmental pressure. A density of one is equal to a million tonne-kilometre per route-kilometre, with a density of less than 10 usually leading to low operating margins and/or poor asset utilisation.

The key freight flow segments presented in this paper are derived from the South African economy’s basic structure and its resultant logistics requirements. Refer to Havenga et al. (2023:6-7) for a detailed description of each segment. Rail economic principles were used to determine the target market share, which in turn enabled the achieved and missing market share to be calculated. Detailed descriptions of the factors that determine these principles are also provided in Havenga et al. (2023:2), after first being published in Havenga et al. (2021).

 

Findings

The South African economy had a high freight demand of 790 million tonnes (mt) in 2022. This, together with the country’s spatial challenge, means it is extremely reliant on the efficiency of its freight logistics system, which has been failing for several years. A long-term forecast indicates that this situation is expected to persist in the foreseeable future and reach 1 020 mt by 2053 (see Figure 3).

Fig 1

Figure 3: South Africa’s current (left) and long-term future (right) GFB and dedicated export line freight flows (FDM™, 2022)

 

Note that general freight business (GFB) flows are indicated by the red lines in the maps, while dedicated export line freight flows are indicated by the blue lines. GFB refers to non-bulk export line freight since the bulk coal and iron ore export lines are dedicated “conveyor belt” type rail lines with dedicated sidings and dedicated loading-offloading equipment. Most export coal uses the coal line between Ermelo and Richards Bay, while export iron ore uses the iron ore line between Sishen and Saldanha.

To prepare for the deregulation of transport in the late 1980s (Republic of South Africa, 1988), South Africa’s freight railway system required investment in GFB railway and renewal, however, this did not happen because the bulk export lines ‘masked’ the problem. Similarly, a Road Transport Quality System (RTQS), i.e. a framework of legal and administrative measures to maintain and enhance safety in road transport and to allow new policies to be implemented, was required but never developed and implemented. While the focus on its bulk export lines was a key contributor to the collapse of the freight railway system, the collapse began earlier (and is, therefore, more complicated) than that.

While ore rail freight throughput is holding up reasonably well, it is constrained due to the inability to expand capacity to service growing demand and has resulted in road freight having a significant increase in moving export minerals, such as coal, to the ports for export. The growth in South Africa’s total coal exports by truck between 2019 and 2023 is evident from the graph presented in Figure 4). Note that the graph’s category labels indicate the relevant coal export ports.

 

Fig 6

 

Figure 4: Coal volumes by trucks between 2019 and 2023 (FDM™, 2022)

 
Coal exports transported by rail have declined due to locomotive availability problems and rampant theft and vandalism. As international coal prices rose, more trucks appeared to substitute for the unavailable freight rail capacity, which is depicted in Figure 5.

 

Fig 7

 

Figure 5: The modal split for the coal volumes (FDM™, 2022) compared to international coal prices in dollars between 2019 and 2023 (Business Insider, various dates)

 
Given this context, it is unsurprising that the 2008 and 2011 views discussed earlier remain largely unchanged in 2022, with Figure 6 providing an almost timeless representation of freight rail in South Africa.


 

Figure 6: 2022 view of freight rail volume and value in South Africa (FDM™, 2022)

 

While Transnet has historically not operated in the high-value freight market, there is clearly an opportunity for rail to service high-value freight based on the FDM™ (2022) view of shiftable freight for tonnes, tonne-kilometre and value. The graph in Figure 7 provides an overview of the tonnage gap between current and target market shares for rail-friendly freight, not only highlighting what road freight volumes should be on rail, but also what freight volumes should remain on road.

 

Figure 4 Rail market


Figure 7: Rail’s current and potential tonnes for each segmentation type (FDM™ 2022)

 

As indicated in the graph, 149.6 mt and 367.1 mt of freight were transported by rail and road in 2022, respectively. South Africa’s land freight transport volumes, therefore, amounted to 516.7 mt, of which rail and road freight transport represented 29% and 71%, respectively. Of the current road freight volumes, 267.4 mt should remain on road, however, 99.7 mt should be transported by rail instead. Additionally, the country’s freight railway system missed out on 44.6 mt of freight that cannot be recovered by road freight transport (i.e. ‘missing lost volumes’), which means the country could have transported 293.9 mt by rail (i.e. current rail plus shiftable road freight plus the avoided missing lost volumes) if the system worked optimally. An optimal rail freight system should theoretically represent 57% of the land freight transport volumes in 2022, which is nearly double rail’s actual 29% tonnage share.

The graph in Figure 8 provides an overview of this gap for tonne-kilometres.

 

Figure 5 Rail market


Figure 8: Rail’s current and potential tonne-kilometres for each segmentation type (FDM™ 2022)

 

As indicated in the graph, rail and road freight transport represented 107.9 and 171.7 billion tonne-kilometres in 2022, respectively. Rail and road, therefore, represented 39% and 61% of South Africa’s 279.6 billion land freight tonne-kilometres, respectively. Of the current road freight volumes, 115.5 billion tonne-kilometres should remain on road, however, 56.1 billion tonne-kilometres should be transported by rail instead. Additionally, the country’s freight railway system missed out on 26.5 billion tonne-kilometres of freight that cannot be recovered by road freight transport (i.e. ‘missing lost volumes’), which means the country could have transported 190.5 billion tonne-kilometres by rail (i.e. current rail plus the shiftable road freight plus the avoided missing lost volumes) if the system worked optimally.

An optimal rail freight system in South Africa, therefore, theoretically represents 68% of land freight transport flows, which is more than double its current 39% tonne-kilometre share. Based on the tonne-kilometre gap (see Figure 8), an ideally functioning system could have resulted in the following rail market share increases across various freight flow segmentations: iron ore exports (16%); coal exports (31%); other export mining (51%); domestic mining (33%); finished palletised goods (30%), and rural extraction and delivery (9%).

Figure 9 similarly provides the rail market share gap in terms of value, specifically in Rands (ZAR), the South African currency. 

 

Figure 6 Rail market


Figure 9: Rail’s current and potential value for each segmentation type (FDM™ 2022)

 

It should be noted that the graph excludes the value of precious minerals and precious ore because including this freight in the view is not sensible, given their combination of extremely high value and comparatively small dimensions and weight. Within the high-value market, a large portion of valuable freight that should shift to rail is automotive (i.e. motor vehicle) freight, including freight that is handled and transported via containers (i.e. containerised freight). Both of these high-value markets fall under the ‘finished and palletized goods’ and ‘rural extraction and delivery’ segments, with motor vehicles representing around 27% of the ‘finished and palletized goods’ segment’s value.

As indicated in the graph, rail and road freight transport represented R 0.25 and R 5.80 trillion in 2022, respectively. Rail and road, therefore, represented 4% and 96% of South Africa’s land freight transport market value, respectively. Of the current road freight volumes that represent significantly more value than rail freight volumes, freight to the value of R1.03 trillion should be transported by rail instead. Additionally, the country’s freight railway system missed out on a staggering R103 billion due to the ‘missing lost volumes’ freight. The country’s freight railway system could, therefore, have transported freight to the value of R1.38 trillion (i.e. the value of current rail plus the shiftable road freight plus the avoided missing lost volumes) if the system worked optimally.

As illustrated in Figure 10, South Africa’s core and feeder freight railway systems can be categorised as conventional rail systems, while its bulk (i.e. single “conveyor belt” pipeline) freight railway systems can be categorised as non-conventional.

 Conventional vs non con rail

Figure 10: South Africa’s non-conventional and conventional freight railway systems (FDM™, 2022)

 
The bulk, core and feeder categories stem from South Africa’s freight railway system’s network rationalisation, which was published as part of the ‘Roadmap for the Freight Logistics System in South Africa’ (Republic of South Africa, 2023:49). The roadmap also includes the “short lines” category, which is not included in the conventional rail system since the DoT should ringfence the short lines. Without the short lines, 247 mt should have been transported by rail in 2022, however, the system’s current shortfall is 100 mt. Finding the additional freight rail volumes to achieve the near 250 mt target is a difficult task.

In terms of the high-value freight market, the task requires shifting 30 mt of palletised general freight (mainly processed foods, beverages, clothing and other Fast-Moving Consumer Goods products) – with 20 mt on NatCor (Johannesburg – Durban) and 10 mt on CapeCor (Johannesburg – Cape Town), respectively. Additionally, 10 mt GFB should be transported by rail on the Maputo corridor, which primarily includes high-value automotive freight in addition to coal and chrome. Furthermore, 5 mt GFB between Waterberg and Pyramid (Pretoria) and another 5 mt GFB (primarily chrome) between Beitbridge and Pyramid (Pretoria) must shift to rail. As for the missing lost values mentioned in the paper, the task requires recovering:

  • 25 mt of export coal through the Port of Richards Bay,
  • 10 mt of export iron ore between Postmasburg and the Port of Saldanha,
  • 5 mt of manganese added to the Sishen Saldanha (i.e. export iron ore) line, and
  • 5 mt of manganese from Postmasburg via Kimberley to De Aar to Noupoort to the Port of Gqeberha.

 

Conclusion

This research highlights current freight rail transport volumes in South Africa, what road freight transport volumes should rather be moved by rail, and the road freight transport volumes that should still be moved via road. Importantly, it also highlights freight volumes that are lost due to the unavailability of reliable freight rail transport services and cannot be recovered by road counterparts. These outcomes and gaps are also provided in terms of the tonne-kilometres and Rand value of the related freight volumes, showing that a large portion of the high-value freight that should shift from road to rail is automotive and containerised freight.

This research can play a major role in further development of the field of macrologistics, particularly concerning its application to an emerging economy such as South Africa. In doing so, it further highlights the importance of macrologistics in macroeconomic development and global competitiveness. It further provides a quantitative evidence base for national strategic decisions regarding the freight rail and overall logistics sector in South Africa. The FDM™ allows various options and scenarios for reorienting the sector to be tested. It can also inform strategic macrologistics planning for key rail freight in the context of the country’s unique economic geography. The research can, thereby, enable the solution of real-life problems, such as guiding the implementation planning of South Africa’s crucial rail reform processes.

Reference list

  • Business Insider. (various dates), ‘Coal – Price’, Available: https://markets.businessinsider.com/commodities/coal-price
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