'Spoornet has over the past five to seven years been subsidising many industries in this country '
SPOORNET'S APRIL 1 tariff increases are part of a three-year strategy designed ultimately to set its General Freight Business (GFB) on a profitable footing, according to newly appointed GFB GM, Ravi Nair.
He said that increases averaged 15%, and that customers could expect more of the same over the next three years.
He stressed however that it was not a knee-jerk reaction but the result of intensive research.
"We did not look at the price increases in a vacuum," said Nair. "With the help of Accenture, previously known as Andersen Consulting, Spoornet examined every industry in which it was involved and the result was a blueprint for each spanning 15-20 years and indicating where each industry was headed, future imperatives, export drivers etc.
"The price increases were therefore a well-outlined strategy."
Because of its limited resources in a market where demand far outstrips capacity, Spoornet needed to look at how, by way of pricing, it could find ways of generating rail friendly-traffic, said Nair.
It embarked on an exercise to benchmark its tariffs and service both locally and internationally through an international railway company called Halcrow Rail.
While Spoornet is aware that its pricing structure must differ from that of the trucking fraternity, in some cases its rates were as much as 300% lower, according to Nair..
"That tells us that Spoornet has over the past five to seven years been subsidising many industries in this country.
"That has hampered our recapitalisation to the extent that we have ageing assets and ageing rolling stock."
In addition, the contracts between Spoornet and its customers were found to be totally in favour of its customers.
In fact many customers were using Spoornet wagons as warehousing because it was cheaper for them to pay the demurrage costs to Spoornet than to erect warehousing.
"On the issue of recapitalisation, we realise that if we don't recapitalise certain market sectors in the next three years we won't have any wagons to service those sectors."
The new pricing strategy is expected to see GFB breaking even within three to four years.
