Maersk challenges Transnet Durban Pier 2 port contract

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JIMMY MOYAHA: State-owned enterprises, or SOEs, seem to be the flavour of the day once again. This time we’re not looking at Eskom, we’re looking at Transnet because a Danish operator by the name of AP Moller-Maersk [APM] has approached the courts in an urgent application to prevent the company known as the International Container Terminal Services Inc, or ICTSI, from taking over the privatisation, or assuming the roles of the appointment that they received. That is a Philippines-based company that was awarded the contract to operate some of Transnet’s ports privately.

Read: Maersk contests Transnet’s pick for SA port partner

I’m joined on the line by Glen Robbins, an independent developmental economist, to take a look at this and try to unpack it. Good evening, Glen. Thanks so much for taking the time.

Let’s start with the application that’s gone through at the moment. From Maersk’s perspective, what are they looking to challenge as it relates to this appointment?

GLEN ROBBINS: Good evening. They are raising concerns that the process that has been followed was one that they felt had some flaws, and so they are effectively going to ask for the process between Transnet and ICTSI to be halted, and ultimately to have that reviewed in a court of law to determine whether or not the flaws that APM determined or suggested were in fact there, and then whether or not the process would need to be reconsidered or reopened for adjudication a second time.

Read: Transnet selects Philippines-headquartered port operator for Durban Pier 2 [Jul 2023]

JIMMY MOYAHA: Glen, obviously a company wouldn’t just launch into something like this if it wasn’t of material interest. How much are we talking about here? What is at stake from a South African perspective in terms of this Pier 2 port itself? How much volume travels through there and how significant this is in our ecosystem?

GLEN ROBBINS: Well, the Durban container terminal Pier 2 is the largest single container terminal in Transnet’s system of nine commercial ports, and it handles the majority of import and export containers in the country. It’s obviously the largest container-handling port in the port of Durban, which handles around about 60% of total containers in the country with Pier 2 handling the biggest chunk of those.

It’s of significance because for around a decade there have been serious questions asked about the efficiency and investment choices that Transnet has made with respect to its operations generally, but specifically in containers.

We’ve seen numerous incidents in the last few years. Some of them perhaps were related to external events like the Durban floods, where the performance of the terminals has been of considerable concern to importers and exporters. Effectively, the status of Durban as a container port terminal has been in kind of decline for a number of years, and it was recently ranked among the worst-performing container terminal ports in the world. This is obviously a great problem for a country that’s very far away from markets, which is very dependent on trade. So an incredibly significant asset in the country’s economy.

Read: Navigating new waters: The privatisation of Transnet’s Durban Container Terminal Pier 2

JIMMY MOYAHA: Now, Glen, Transnet is opposing Maersk’s application from their perspective. The company that hasn’t said too much here is the ICTSI from the Philippines. They’ve said that it’s a legal thing. They don’t want to comment on it and all of that, but let’s look at what this actually means for a company like ICTSI.

This transaction would represent 13% of their global volumes if they get this through. So clearly that is a significant part of their business interests that they get this deal as it stands. But why would Transnet want to oppose such an application if a company like Maersk is already suggesting that this application will not significantly delay this process?

GLEN ROBBINS: Well, obviously Transnet feels confident that the procedure they followed was an appropriate one. It’s taken quite a bit of time to get to this point, and they don’t want to have the process reset for them to then have to kind of begin adjudicating this matter all over again.

From the side of ICTSI, generally it’s worth noting that globally these big global port-operating companies – and there are a handful of them – are incredibly ambitious in seeking to kind of extend their influence across the global port system. APM is one of them.

Read: Transnet concludes financial due diligence on ICTSI’s Durban Pier 2 deal

ICTSI is a relatively new player on the block and has been very aggressive growing into, I suppose, very much developing country markets – often smaller terminals in countries that have perhaps been bypassed by some of the big global players. But originally AP Moller, ICTSI, Cosco, a big Chinese port company, DP World from Dubai and a handful of others all expressed interest in and put forward proposals in relation to this effective 25-year kind of a concession and venture for the Durban Container Terminal 2.

They are quite used to contesting with one another in the global market for control over container-terminal arrangements. There’s an incredible amount of rivalry between these players.

But because they’re able to utilise their presence across many global ports to optimise operations; and generally they are quite profitable operations able to run container terminals in different parts of the world.

JIMMY MOYAHA: Glen, let’s look at what this actually then does for Transnet at the moment. The Transnet ecosystem has been under a lot of strain in various points as well – whether it’s the Transnet Ports Authority, or whether it’s the Transnet Freight Rail system. Transnet as a whole has had myriad problems.

The whole point of the privatisation initially was to take some of the pressure off, as well as to introduce some alternatives that would optimise what we currently have in terms of maintenance and operations and ability to deliver things from port to port.

Read: Transnet’s plan to attract rail investment misses the mark

If we look at the current situation, where do we think Transnet sits – Transnet Port Authority in particular. Where do we think they sit on the expansion of these private/public relationships on their side? Do they have the capacity to do it with other ports? And if so, do we think that this is a solution that we can implement across our other ports?

GLEN ROBBINS: Well, certainly national government and President Cyril Ramaphosa have made this point fairly consistently that that there could be much greater private-sector participation across all the activities of the state-owned enterprises, including things like water and other utility arrangements.

I think that these early attempts by Transnet in allowing user access to the rail network talk of the concessions at, in particular, the Port of Durban. But a number of other ports have been noted as possibly being considered as part of Transnet’s sort of reform agenda to try and get them out of this crisis in relation to effectively all of their operations, barring perhaps the Transnet pipelines.

So the movement towards greater private-sector participation is very much one that is coming from government policy, and Transnet is really following that order from the shareholder to explore different options and I suppose test the waters, so to speak.

So this is by no means the full privatisation. The ownership of the assets remains public. All assets revert back to Transnet after the 25-year arrangement has gone through.

And it has kind of a joint-venture flavour where both parties to the contract, Transnet and the awardee’s contracting partner, at the moment ICTSI, would invest and collectively look at how best to manage and operationalise the facility.

I think the thinking behind that is that most people who’ve assessed the state of our ports would say that we are probably 10 to 15 years behind in systems of port management, the kinds of technology that we operate, as well as the overall integration of our ports into our wider logistics systems.

Despite the sort of big promises that were made as part of the strategic infrastructure projects under President Zuma, not much has actually happened. In fact the port system has gone backwards. So this is a way of Transnet hoping to kind of learn from international operators how to upgrade its entire system – but without making changes across its entire portfolio.

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So in a sense it’s creating an opportunity for Transnet to learn from some of the best international operators, and they can then begin to apply those learnings. At least that’s the thinking across other port terminals, other operations, and their rail system and in their general sort of management practices and the like.

So that’s the sort of case that’s been made. About whether Transnet has the capability to do that I think a lot of people would have quite serious questions. Transnet is an incredibly complex business.

There are not many state-owned enterprises that would look like Transnet, running nine commercial ports, plus a rail system, plus pipelines, doing both the landlord function and running terminals. It’s a bit of an outlier globally.

And [among] most port systems many remain in public ownership but have reformed very differently. For example, you’d see a much greater commitment to competition between ports, because there’s a strong sense that you don’t want to rely on a single port to perform, and for the whole country to depend on the performance of that port.

So you get countries like Canada and Australia that have all made attempts to try and diversify the capabilities across their ports, but also to have different stakeholders involved in running those ports so that you get a degree of competition that can help stimulate better performance within the various ports that are there.

JIMMY MOYAHA: Diversification – but hopefully, it’s not too late.

Thanks so much, Glen, we’ll leave it at that. Glen Robbins, who is an independent developmental economist, joined me to unpack the latest developments out of Transnet.