On the road again?
A picture is worth a thousand words, as the CEO of a major African rail company demonstrated powerfully at the Africa Rail 2018 conference in Johannesburg in June 2018.
To illustrate his point, he put up a slide showing dismantled railway wagons being transported more than 2 000 km on trucks; the irony was not lost on the audience.
“It was cheaper to truck the wagons than it was to send them on rail,” said James Holley, CEO of the Traxtion group, a 30-year-old company based in South Africa that runs one of the largest fleets of mainline locomotives on the African continent.
“Goodness me! If that doesn’t represent everything that we’re getting wrong at the moment in our industry, then I don’t know what does.”
“Road does have advantages compared to rail,” he said. “We don’t talk about it much, but it’s an unfortunate reality. Unless we deal with it, we aren’t being honest with ourselves.”
Road has advantages over rail, something that isn’t always acknowledged
Road networks are more developed, he said. Road can run door-to-door, and therefore has more industry capacity. “What that means is you’re able to extract product out of a warehouse quicker than rail can. We dwell a lot on the fact that rail can move bulk cargo, but that doesn’t help when you get to the warehouse only every two weeks.”
And, there are extremely low barriers to entry in the road industry. “Literally anybody who has the capacity to raise a bit of debt can go out and buy a truck and enter the road industry. And their assets are highly versatile and highly traded.”
But perhaps the largest single disadvantage rail has compared to road is that it needs massive volumes of cargo in order to be sustainable. And the reason, said Holley, is that rail is extremely capital-intensive, with a massive base of fixed costs.
“A simple example: if you have $40 million of fixed costs in a railway business, and you move 1 tonne of product in a year, you need to charge $40 million for that tonne to recover your fixed costs. However, if you move 40 million tonnes, you can charge $1 per tonne to recover your fixed costs. So, rail needs huge volumes to survive.”
Holley reckons that the lack of huge volumes of bulk cargo is the main reason many so many African railway concessions have not succeeded, even those that have been well designed and capitalised at the outset.
Johny Smith, CEO of Namibian rail company TransNamib, also highlighted what he saw as the challenges that rail faces in competing with road. Addressing the issue of reliability, he said:
“I see three challenges from a regional perspective. The first is the rail infrastructure – some of it is more than 100 years old. The second challenge is technology – we are years behind road in terms of the technologies they have implemented. Thirdly, we have to ask the question: are we still doing business the way we were fifty years ago?”
Leonard Makwinja, CEO of Botswana Railways, said shippers preferred road because of its convenience, flexibility and ability to deliver cargos on time. He said rail suffered costly delays at border crossings because rail operators use different train control systems that don’t always talk to each other, and locomotives have to be changed.
However, he argued for a more pragmatic approach. “Rather than looking at road and rail as competitors, they can actually be complementary,” he said. “For example, you can do long haul on a freight train, offload at a container terminal, and then use trucks to deliver to areas where rail cannot go.”
This point was echoed by Barbara Mommen, CEO of the Maputo Corridor Logistics Initiative. “Can we afford to continue to operate under the status quo where road fights with rail for volumes, and vice-versa? Or is it not time to start looking at a different level of collaboration and cooperation where everybody wins?”
This way of thinking has given birth to a promising young logistics company in South Africa called Empty Trips.
It is essentially a digital platform that keeps a constantly updated record of all empty or unutilised space on trains, trucks, ships and aircraft. A shipper needing to move cargo informs Empty Space of what kind of cargo it has, where it needs to go and when. A smart algorithm then matches the cargo up with whatever space is available – at very competitive rates.
“We’ve just launched a pilot train service from Durban through to the Northern Corridor through Zimbabwe and all the way up to Ndola,” said Justine Letard, the company’s Business Development Manager. “Just this week, we quoted a price to a customer wanting to transport various recycled products up the Northern Corridor, and we saved him around $125 000 on an annualised basis – and that was end-to-end, including getting the product from road to siding, and the last mile from siding to the final delivery point.”
This spirit of cooperation between road, rail and other forms of transport promises to be a game-changer in southern Africa, allowing shippers to move their cargo not on the basis of which mode of transportation is used, but how efficiently and cost-effectively the entire exercise can be done.