Greater rivalry at South Africa’s eight commercial ports will lead to better outcomes, according to an economist who studies the performances of the nation’s gateways to international trade.
Ryan Hawthorne of consultancy Acacia Economics says Transnet, which owns the ports, “is under quite a lot of pressure to reform across the logistics value chain because of the massive inefficiencies and failures to invest” — and he believes private business should be brought on board.
He says Transnet’s engagement with the private sector is “desirable ... but partial”, with only one participant instead of four or five terminal operators.
The single participant is the Philippines-based International Container Terminal Services Inc (ICTSI).
The Durban high court this month upheld Transnet’s decision to award a 49% concession of Durban’s main container terminal, the country’s largest, to the port operator. The Pier 2 container terminal is the largest and busiest in Southern Africa, handling 60% of the country’s container cargo. It is the only one in Africa with tandem lift cranes that can carry 80t at a time.
A rival bidder had challenged the decision. The court ruling has now eliminated a major legal obstacle, allowing Transnet and ICTSI to proceed with the long-delayed modernisation and upgrade of the terminal, a vital step to improve operational efficiency, reduce congestion and increase capacity.
The partnership is also a key element of Transnet’s strategy to attract private business investment and expertise, reduce debt and improve terminal productivity, with an investment commitment of about R11.1bn over 25 years.
Hawthorne wrote a research paper with National Treasury economists Nonhlanhla Msimango and Carla Orffer on inefficiencies and monopoly issues in South Africa’s ports. They note that the National Ports Authority, which manages the ports, has leased space to a range of terminal operators, including joint ventures. “However, it appears competition … has not been sufficiently considered, probably as a result of its continued ownership by Transnet, which has a strong incentive to protect its revenues from its port terminals business,” says the paper.
You can have multiple terminal operators operating on the concrete that’s owned by the state
— Ryan Hawthorne
The authors say ports the size of South Africa’s can host several terminal operators. “The National Ports Authority runs the risk of harming the interests of consumers in concessioning monopolies … because monopolies typically charge higher prices, provide lower-quality services and innovate less. What happens at many ports around the world, including in developing countries, is there is more than one terminal operator.”
Hawthorne tells the FM: “The problem is that there’s only going to be one terminal operator after this concessionary process. There’s going to be a monopoly at Durban port, instead of four or five competitors — like we have four or five mobile network operators.”
He says ports should operate the same way the Independent Communications Authority of South Africa runs the radio frequency spectrum auction.
“The state controls the radio waves, in the same way that the state controls the concrete and the inlets to our harbours — those are all state-owned assets. Those assets we don’t just auction off to a monopoly. Consumers would be up in arms. We would like a choice, we would like them to compete, and we would like to be offered competitive prices,” he says. “Ports are the same. You can have multiple terminal operators operating on the concrete that’s owned by the state.”
Cape Town mayor Geordin Hill-Lewis reiterated last month that Cape Town’s port needs the involvement of private sector operators. He welcomed its “modest improvement” in the Container Port Performance Index 2020-2024, published by the World Bank and S&P Global Market Intelligence, moving up from last position to 400th out of 403 ports.
But the port remains among the bottom five in the world, he said, which “underscores the urgent need for Transnet to bring in private sector management to consolidate these green shoot gains”.
In his statement, he added: “An efficient port is essential for job-creating growth in our region. That’s why we are calling for the urgent completion of the national government’s request for information process on private sector partnerships for the port of Cape Town. To keep making progress, we need continued investment in port upgrades alongside more private sector involvement in running the port.”
Transport minister Barbara Creecy says the court ruling on the Durban harbour equity partner is a “demonstration of our commitment to embrace private sector participation”.
There have been some improvements at the ports. In the week ending July 20, 101,295 units were handled across port terminals, not far from the record of 105,650 containers in a week that was set in 2014/2015.
