Senior executives, led by CEO Zandile Jakavula, called a media briefing in
Johannesburg last week to explain the reasoning behind the increases
and the way forward. Joy Orlek filed these reports.
Increases address unsustainable tariffs
PROFITABILITY IS the bottom line in any business, and the recent tariff hikes introduced by Spoornet are part and parcel of the rail utility's long-term goal to place General Freight Business on a sound financial footing.
Responding to the recent media frenzy which greeted Spoornet's 12-67% tariff adjustments, CEO Zandile Jakavula made his standpoint on cross-subsidisation clear at a media briefing in Johannesburg last week.
"We believe that although in the short term our profitable businesses, namely Orex, should subsidise the GFB business, in the long term GFB should be able to stand on its own and be sustainable.
"By realising this I will be delivering on the mandate that I was tasked with when I joined this organisation two years ago."
While government accepts that cross-subsidisation of GFB is necessary until it can stand on its own, Jakavula believes it would be negligent to continue cross-subsidisation indefinitely.
"We have no control over international markets with regard to coal and iron ore, and if Orex and Coallink failed to be profitable, the entire Spoornet would collapse.
"The idea therefore is to make the entire Spoornet operation profitable."
Jakavula pointed out that even after the tariff increase, Spoornet's rates were lower than road.
Current estimates are that GFB is making a loss of R1,6m per day.
"A significant reason for this is that when Spoornet enjoyed excess capacity, our focus was volume-driven resulting in us servicing unprofitable businesses and in many market sectors we have contracted for rates that are far below that of our road competitors.
"It was costing us more to service some sectors than the revenues we were generating to provide the service. As a business we are compelled to address such anomalies and to ensure that the businesses we run are profitable and sustainable."
Spoornet has a customer base of around 1 300, of which only a handlful are profitable.
"We can't continue to serve all our customers in the same way.
"We need growth, but we also need more capacity, and without money to invest we are not able to create that capacity.
"There is a backlog on capital investment and we need to optimise yield management.
"It is our desire to remain competitive and to attract and retain rail-friendly traffic.
"Of the total tons available, there are 55 million tons of rail-friendly tonnage going by road.
"While we would like to have it, we can't accommodate it until we have capacity to do so."
And until then Spoornet will need to ensure that asset utilisation is efficient.
To achieve this, several new strategies will be implemented.
s pricing based on economic viability;
s differentiating in favour of rail-friendly traffic; and
s moving unprofitable traffic to profitability
in a considered time frame, bearing in mind the social impact;
Tariff increases for rail-unfriendly traffic will be implemented with immediate effect with a view to bringing that traffic to profitable levels.
