A presentation by Dr Andrew Shaw (Associate Director: PWC) at the Transport Forum SIG 21 April 2016 hosted by T-Systems SA Pty)Ltd. The theme for the event was: "Innovation in Transnet" and the topic of the presentation was: "Innovation in Transnet"

1. Building competitive rail
- port solutions
www.pwc.com
Dr Andrew Shaw
Innovation in
Transnet Conference
21 April 2016
Midrand
Driving Innovation in Transnet

2. www.pwc.co.za
1International
railways – Driving
integration
Page 2

3. USA rail trends
US railroads performed exceedingly well during the ‘renaissance’ of the 2000s. 70 % of
domestically produced automobiles, 70 % of coal delivered to power plants, and 35 % of grain
now moved by rail*.
Source: PwC – US Transportation & logistics sector trends, July 2014, *RAIL TRANSPORTATION Research Brief. Sustainability Accounting Standards
Board, Sep 2014 Page 3
• Standardisation of container sizes,
• High terminal-handling efficiencies have leading to
faster loading times,
• Point-to-point distribution though working with road
freight providers,
• Boosting productivity of existing track, including
double-stacking containers, double track, and using
distributed power which enable longer trains and fuel
cost savings
• Intermodal freight now comprise 41 % of rail
revenue*, and has one of the best growth outlooks of
all rail categories.
• Economies of scale, rail market dominance and
highway congestion making rail intermodal likely to
take more share from trucking.
• Certain railroads such as BNSF and UNP tend to
benefit in this market from longer lengths of haul,
double-stacking and more track. Further growth can
be expected in cross-border intermodal container
traffic.
Efficiency
initiatives
Intermodal
Growth

4. PwC
Inland terminals as points of freight consolidation
and transfer
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Source Interempresasus, 2010, China's Transportation System and Plans for the Future, USFHA, 2004, Rodrigue & Notteboom, 2012, Dry Ports in European
and North American Intermodal Rail Systems
Europe China USA
 Rail accessibility to gateway
seaports,
 Inland terminals have evolved to
incorporate logistic zones,
 Strong influence of EU policy for
rail integration and rail
deregulation,
 Government often subsidises
inland terminals to attract industry
and improve rail modal share,
 Point-to-point shuttle trains (40-95
TEU) dominate mainlines.
 Strong container based export
demand through largest global
ports serving post-panamax
vessels,
 Operated by a number of state
owned railway companies, at
national and smaller railways at
regional level,
 Inland terminals located within
proximity o large industrial
centers.
 Inland terminals often sited at
historic inland rail interchange
points,
 Terminals have attracted third
party logistical, warehouses and
distribution centres,
 Strongly driven by 8 large private
railroad companies,
 Arrangements can include up to 4
parties between railroads &
shippers to improve service
offering to customers.

5. The ‘paperless’ railway
U.S. shippers are driving integration between truckers, smaller railroads and Class I's. The
focus is on accountability, reliability, better customer service — integrated across a
seamless supply chain and providing “real time” visibility
• More rail freight moves on predictable
schedules,
• Railways have had greater demand
for and ability to set and negotiate
rates and work with other parties
Customer
Technology
Rail
• Innovative real time Internet technologies,
• Supply chain integration technologies rapidly
improving,
• Technologies aligning more closely to internal
company value chains
• Smaller carriers and shippers are able to integrate
their disparate processes and create an efficient &
seamless transportation network
• Customers expect a lot more from
their LSPs & railways,
• Shippers and carriers find it easier to
integrate their disparate processes &
link seamlessly to others,
Seamless communication -
between railways &
shippers/customers, often using open
platforms such as the Internet
Transportation management -
rail and intermodal operations
solutions
Revenue accounting & revenue
share between multiple parties,
including customer service
applications for billing
Rail planning & equipment
management solutions,
Shipment tracking – via internet
interface that provides visibility,
enabling customers/LSP’s to manage
a rail shipment at any point in time,
as well as access and view all
shipments en route
Newer developments – Support
to signal & communication assets,
equipment repair billing and
inventory management.
Drivers for change What’s on offer
Source: PwC analysis and O'Reilly Jan 2004 “The Evolution of the Paperless Railroad”
Page 7

6. www.pwc.co.za
2Road versus rail
competition in South
Africa
Page 6

7. PwC
MDS Turnaround Driving Volumes Back to Rail
Page 7
• Forecast growth in freight on this corridor
from 45 Bill Ton-km (2014) to 113 Bill Ton-
km (2045) (Transnet Group Planning, 2015),
• Rail intermodal traffic has increased
substantially (Transnet Group Planning,
2015):
- From 4 trains per day in 2011 to 24 trains
per day in 2015,
- Average transit time reduced from 30
hours to 22 hours
Natcor/N3 Corridor
Source: Transnet MDS Strategy 2012
• Road continues to carry the majority of freight (approximately 78% in Ton Kilometres) on
the N3/Natcor corridor.
• Transnet is targeting a shift in rail model share on the N3/Natcor from the current 22% to
39% over the next 30 years. This shift will represent approximately 60% of all rail
addressable volumes (RAM) on the corridor.

8. PwC
South African Road Freight – What has changed?
Interlinks able to carry 40 and
20-foot container combinations and curtain-sides
provide a 30% volume uplift
Double lane – estimated travel time 8 hours
40-foot container maximum
Many sections single lane – estimated travel
time 18 hours
Toll cost – R 900 per one-way tripToll cost – R0
Simpler logistics requirements:
• Point to point,
• Largely non-containerised,
• Low prevalence of DC’s
• City Deep industrial dominance.
Complex logistics requirements:
• Point to multiple points,
• Containerised or de-consolidated cargo,
• High prevalence of DC’s & consolidation/de-
consolidation points spread across Gauteng.
2010s1980s
Page 8

9. www.pwc.co.za
3The decision of which
mode to use?
Page 9

10. PwC
Market sounding reflects responses of supply
chain challenges with rail
Container
Vessel
Ship to
shore
TPT
stack
Rail
stack
Rail
haulage
Rail
stack
Truck
haulage
Distrib
ution
Retail/
factory
De-
consolid
ation
DCTruck
haulage
Typical container import supply-chain
Stack time neutral but could
favour rail
Key area of lost time
Reliability of service
Customers don’t know where box is
Key area of lost time
Customer service poor
Cost of last-mile truck haulage
makes rail tariff uncompetitive
Not close enough to terminal
Cost of last-mile truck
haulage makes rail tariff
uncompetitive
Terminal not close enough to
final market
Space to build DC close to rail
terminal limited
Cost of last-mile truck
haulage makes rail
tariff uncompetitive
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11. PwC
The importance of rail terminal locations
• The market makes freight logistics decisions based on the relative
competitiveness of the entire logistics supply chain. It does not tend to fragment
these decisions into modal choices relating to specific elements of the supply
chain,
• The fundamental question therefore becomes whether prospective supply chains
including the terminal can become more competitive than the supply chains that
exclude the terminal
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12. PwC
The competition is intense (an example*)…
Rail
transport
Port
terminal
Last
Mile
De-
stuffing
Port
terminal
Road
Transport
R 8 to 9,000/TEU
R 7 to 750/ Pallet
R 9 to R10,000/TEU
R 8 to 850/Pallet
16%
48%
36%
18%
41%
41%
*Based on an indicative 2015 example of consumer goods moved from Durban to Gauteng
Consolidated intermodal Direct Routing
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13. www.pwc.co.za
4Creating rail friendly
solutions
Page 13

14. PwC
Build market share by integrating Transnet into
the customer freight value chain
Create alignment
between key value
dimensions of strategic
partners in the supply
chain, including third
party providers and at
customer interfaces
Align pricing and service
design to customer needs.
Look for opportunities to align
rail network to the supply
chain of customers,
Consider warehouse &
inventory holding needs of
customers,
Upstream and downstream
integration with third party
suppliers,
Consider outsourcing areas
better achieved by others,
Alignment & integration
between internal business
functions,
Analytical capabilities to
support supply chain risk &
management functions,
Standardise & simplify
internal processes and align to
partners and customers.
Maximise rail asset
utilisation
Maximise port asset
utilization
Maximize terminal
utilization
Maximise asset
utilization of partners
such as road haulers
Create KPI’s aligned to
customer needs of the
complete rail service offering
KPI’s are tracked and
understood across Transnet
functional departments
Align investment and
operational improvements to
customer needs, for
example:
1.Reduce overall transit time,
including time in terminal,
2.Improve security,
3.Improve customer
interface,
4.Provide real-time track
and trace.
Create mitigation processes
to address disruptions,
Align disruption responses
to performance management
responses,
Align disruption mitigations
to third party providers.
Customer
Service
Supply Chain
network
design
Asset
Utilisation
Performance
management
Mitigation
against
disruption
1. Improve yield
management
2. Competitively position
price
3. Long terms contracts
with partners
Adapted from: MITforum/PwC, PwC Supply Chain Strategies
2013, 10 minutes on strategic supply chain management
Page 19

15. PwC
Some ideas of possible actions to improve Transnet
market share
15
Re-consider who your
customer could be
Diversify pricing and
service mix
Improve Transnet
interfaces
 Technology upgrade unlocks the introduction of new work practices, including
improved condition-based maintenance and delivery of the locomotive
deployment plan.
Reconsider how
terminals are
operated
Reconsider how and where terminals are operated
 Consider outsourcing the terminal and customer interface,
 Bring the customers to the terminals – Consider add-on-activities at
terminals such as stuffing, de-stuffing, warehousing, preferential access
to terminals by large adjoining customers,
 Look for un-utilised sidings in Gauteng’s industrial areas and create a
potential dedicated rail warehouse model with just a few large
customers,
 Create an easily accessible list of accredited last-mile road haulers.
1
3
4
2
Reconsider who owns the customer:
• LSPs may bring customers you don’t have,
• Wholesale or other models to sell capacity
Change the approach to pricing box moves, consider:
• Differential pricing and yield management,
• Long term contracts with Shipping lines and LSPs, and
• Consider incentivising freight forwarders to attract traffic to rail.
Improve the Durban Port–Rail interface and price the TFR-TPT interface to
attract customers to rail.
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