1. 1PAGE BRIEFING TO THE PORTFOLIO COMMITTEE ON AGRICULTURE, FORESTRY AND FISHERIES 30 AUGUST 2011

2. 2PAGE CONTENTS Agricultural Industry Overview – Grain, Timber and FMCG Agricultural Industry - Rolling stock Performance Challenges Transnet Freight Rail Solutions Successes Industry Structure

3. 3PAGE INDUSTRY STRUCTURE Seasonal production. Droughts / flooding influence production. Influenced by fuel price. Import / export imbalance. Multiple sourcing points. Inability to plan investments and volumes to be transported. Lack of consolidated loading facilities.

4. 4PAGE AGRICULTURAL INDUSTRY OVERVIEW Transnet Freight Rail (“TFR”) serves Grain, Timber and Fast Moving Consumer Goods (“FMCG”) customers. The Timber business is mostly limited to Mpumalanga and KwaZulu-Natal areas with the largest mills in Umkomaas, Richards Bay and Ngodwana. TFR transport mostly timber logs, mining timber and pulp. The FMCG business provides transportation of sugar cane, beer, sugar and malt. Sugar cane being transported from the KwaZulu-Natal sugar cane fields to the local sugar mills. The Grain rail business is the transportation of maize, wheat and barley. The Free State, Northwest Province and Mpumalanga are the largest grain producing areas in the country. TFR moves maize and wheat to various Southern African countries e.g. Botswana, Mozambique, Zambia, Namibia, Lesotho, Swaziland and Zimbabwe.

5. 5PAGE GRAIN INDUSTRY OVERVIEW – GRAIN SILO MAP Silo owners and input suppliers: analytical work on concentration of ownership amongst a few former grain co-operatives suggests that there are good reasons for concern about oligopoly pricing. Grain silo ownership is highly concentrated, with three former co-operatives, Sentraalwes (SWK), OTK and NWK owning 72% of all silos.

6. 6PAGE GRAIN INDUSTRY OVERVIEW – VALUE CHAIN Import/exports Raw materials Finished products By products Farms Imports Co-op / Silos Exports Mills for human consumption Stock feed manufacturers African products Oil presses Sugar mill End users Complex value chain consisting of farmers, co-operatives, millers, traders, silo owners and manufacturers Market centres around the search for the lowest delivered cost Availability & quality of raw material or inputs also play a role Logistics cost: transport cost makes up a major portion of the delivered price of grain The net effect of the characteristics is an industry characterised by random and unpredictable flows Transnet Freight Rail (“TFR”) is mainly involved in inbound logistics in this industry i.e., TFR rails grain from silos to mills and animal feed producers as well as exports and imports when required. Scope of TFR services to grain industry

7. 7PAGE GRAIN INDUSTRY HUBS : NETWORK – WIDE HUB Belville Beaconsfield Sentrarand Kroonstad / Gunhill Durban 9 Major “grain” hubs in network to distribute traffic geographically Hubs are consistent with operating models for clusters from branchline concessioning project Bethlehem Klerksdorp Coligny Polokwane Bloemfontein Capital Park, Pretoria West, Waltloo Krugersdorp East London Welgedag

8. 8PAGE AGRICULTURAL INDUSTRY: ROLLING- STOCK Timber Industry The wagon mostly used in this Industry is the ST wagon. A skeleton type wagon which can be easily loaded from the side or top. Mostly used for the transportation of timber logs. Grain Industry The wagon mostly used in this Industry is the FZ and FG type wagon. Carrying capacity of these wagons is 44 tons. FMCG Industry The wagon mostly used in this Industry is the FZ and FG type wagon. The Industry also makes use of closed wagons with special security features. These wagons are used for the transportation of beer.

9. 9PAGE GRAIN INDUSTRY: ROLLING - STOCK Average Fleet Sizes for past 6 years

10. 10PAGE GRAIN INDUSTRY : HISTORICAL VOLUMES Maize and wheat has declined from 7.8mt per annum in 1992 to 3,5mt in 2010

11. 11PAGE GRAIN INDUSTRY : HISTORICAL PERFORMANCE 2010/11 TFR has not matched the demand for grain (maize and wheat) in the 2010/2011 financial year. TFR managed to rail 3.54mt out of a budgeted figure of 5.29mt – this includes overborder, domestic, imports and exports.

12. 12PAGE AGRICULTURAL INDUSTRY : CONTRIBUTORS TO THE LOSS IN TONNAGE Decline in TFR rolling stock (wagons and locomotives) quantities. Age and condition of rolling stock (breakdowns lead to late deliveries). Decline in service levels as a result of cable theft, infrastructure failures, historical underinvestment in maintenance. Competing rates for empty return leg traffic. Seasonality of yields does not lend itself to sustained investment in a climate of investment squeeze.

13. 13PAGE SUCCESSES Increased maize trains out of Kroonstad and Kimberley. Grain export through East London reinstated. Reefer containers started to move Avocado Pears from Mpumalanga. Collaboration with Timber Industry to develop new generation timber wagons. Timber optimisation – customer established mega loading site to fit in with rail block load concept.

14. 14PAGE CHALLENGES INDUSTRY Lack of bi-directional traffic. Small consignment sizes – silos cannot accommodate block loads. Lack of investment in silo loading equipment. Unpredictable local-, import- or export flows. Multiple sourcing points (200 at least). Seasonality of specific products e.g. sugar cane. Fragmented because of numerous players. Imbalance between imports and exports. TRANSNET FREIGHT RAIL Small consignments not cost effective for rail. Long turnaround times of wagons. TFR limited rail capacity: - Locomotives - Slots Age of TFR’s locomotives and wagons.

15. 15PAGE TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE INDUSTRY June 2007: TFR decided to remain in agricultural market despite heavy losses  Collaboration with industry to improve service levels;  Food security is a key driver;  Small consignments and numerous loading points not conducive to rail; and  Developed strategy for less than train load traffic (met with limited success). April 2011: Introduced the Grain Optimisation project which had positive results in many areas.  Improved service levels;  Decreased turnaround time of wagons;  Dedicated cross functional team to address operational and service related issues;  Multiple shunts too costly for TFR; and  Need to increase average train length by introducing consolidated loading points.

16. 16PAGE TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE INDUSTRY CONT… Collaboration projects with Industry −Designing and the building of a new generation timber wagon. −Timber customer developed a mega loading site to fit in with TFR’s block load traffic concept. This is a win-win situation for both parties. −Customers erecting lighting at sidings to allow rail operations at night. −Thuthihlathi 1 and 2 collaboration projects where traffic of different timber customers was consolidated and moved as block load traffic. Private Sector Participation (“PSP”) Initiatives −Customers and TFR in talks to conclude various PSP Agreements to enhance investment in industry and service levels. Customer Relationship Management −Discussions with all grain customers interested in deep sea maize exports to discuss new slots/additional capacity on a regular basis. −Talks with Grain Industry role players to explore solutions to Industry challenges.

17. 17PAGE TRANSNET FREIGHT RAIL SOLUTIONS FOR AGRICULTURE INDUSTRY CONT… Branch lines concessioning. Positive spin-offs and more traffic expected. Business Unit (“BU”) concept for Agriculture with related commodities. A specialised team that will exclusively service this BU. TFR to improve services for BEE farmers. Finally, in line with employment creation, TFR continues to prioritise the communities within which it operates.

18. 18PAGE THANK YOU !