Lessons for Kenya

1
Lessons for Kenyas Port Congestion
CONFIDENTIAL
25/26th September 2008
2
AGENDA
South Africas Experience in 2001
Lessons learnt in South Africa
Where are we now ?
Ports challenge in Kenya
3
THE TRANSNET STRUCTURE
4
There are many views on the definition of
CONGESTION
Is it a back log in vessels waiting at outer
anchorage for a berth ?
What is congestion? Congestion is defined as
the inherent lack of infrastructure, both on the
landside and the waterside, that constrains the
flow of freight
or
Is it poor operational performance of the port
operator where vessels are not leaving on time ?
or
Is it the lack of capacity to match the demand
which leads to stack congestion
Factors that influence congestion
or

• Inadequate port infrastructure
• Insufficient road and rail infrastructure
• Poorly integrated supply chains
• Low productivity levels, including low
  productivity

Is it the erratic calling of shipping lines to a
port that causes bunching of vessels ?
5
Background to what happened in the South African
Ports in 2001

• 2001
• Volume growth outstripped available capacity
• Anti-privatization strikes
• Compensation for delays by the Shipping lines
  Pre Post 2001
• 2002
• Imposition of the 100 surcharge in South Africa
  by the shipping lines
• South African Chamber of Business (SACOB)
  facilitates meeting between shipping lines, cargo
  owners Transnet
• Ministers and Director Generals intervene
• Establishment of Interim Advisory Board (Name
  later changed to South African Container Terminal
  advisory Board - SACTAB)
• 2003
• SACTAB began its work. . .

6
CHALLENGES WE EXPERIENCED IN 2001/02
Business performance

• Low profitability
• High gearing at a Transnet level
• Capacity constraints handicapped growth

Investment

• A history of underinvestment
• No coordinated Transnet investment plan

People

• The need to establish a performance culture
• Uncertainty regarding concessioning of ports
• Industry wide skills shortage

Efficiencies

• Low productivity levels. DCT was operating at
  under 14 container moves an hour
• Poor ETA compliance by shipping lines
• Shipping lines imposed a US100 surcharge

Source Team analysis
7
What led to the Congestion in South Africa in
2001 ?

• Primary
• Arrival patterns (Capacity vs. Demand)
• Equipment failure
• Delays
• Third party issues (Addressed in following
  slide)
• Secondary
• Not enough infrastructure
• Lack of inadequate equipment e.g.. Straddle
  carriers Cranes
• Poor terminal design

8
Problems we experienced with the different supply
chain partners
Shipping Line Issues
Importer / Exporter Issues

• Inaccurate ETAs
• Inaccurate discharge and load information
• Late submission of stowage plans by lines
• Changes in stowage plans
• On geared cellular vessels ships cranes obstruct
  gantries from working productively in certain
  stow positions on vessel
• Overbooking of vessels capacity results in cargo
  being short shipped and/or rolled over
• Poor planning of tranships
• On-berth repairs
• Bunkering where it affects the operation

• Not packing exports timorously to meet stack
  dates
• Exporters book the same cargo with different
  lines. Lines therefore submit incorrect export
  volumes to terminals
• Not getting import documentation through in time
• Importing more cargo than can be handled by the
  importer, results in containers being left beyond
  the allowed 3 days
• Unwillingness to work extended hours of
  production to have export cargo ready within
  stack times
• Amending export documentation without informing
  the shipping line (changing POD, vessel, etc)
• There is mis-declaration of weights for both
  imports and exports
• Last minute requests for CODs on imports
• Last minute requests to change port of
  destination

Freight Forwarder Issues
Road Haulier Issues

• Not processing import documentation timorously
  including taking release of cargo from Lines /
  Customs documentation
• Use of haulers with non-roadworthy trucks that
  break down continuously - resulting in late
  delivery /collection of cargo - both import and
  export
• Submitting CTOs at the last minute for
  processing and then handing in 100 CTOs and
  wanting them back in 5 minutes
• Errors made on CTOs - incorrect data capture
• Illegible writing on hand-written CTOs
• Use of incorrect reference numbers - not the
  reference given by the Shipping Line - Lines can
  solve this by carefully checking references
  before stamping CTOs
• Collecting containers that have not been
  discharged

• Not accepting/packing cargo 24 hours a day 7-days
  a week creating peaks in traffic arrival at the
  terminal
• Arriving at terminal without necessary
  documentation
• Truckers using false number plates - registering
  one truck and then sending 3 trucks to the
  terminal with the same registration plates
• Trucks not registered to collect import
  containers - coming to terminal to collect and
  then delaying things while their problem is
  sorted out
• Truckers using non-roadworthy vehicles
• Unauthorised parking in terminals and in
  Langeberg Road (Durban) causes congestion
• Truckers abandon their vehicles while they attend
  to other business

Source SACTAB Workshop. 2003
9
The media had a field day and impacted on the
reputation of the SA ports system
Sunday Tribune 17 Nov 2002
Business Report 15 Oct 2002
Mercury 29 October 2002
Mercury 13 Nov 2002
Star 13 Nov 2002
Business Day 18 Nov 2002
Mercury 16 Oct 2002
Mercury 14 Nov 2002
Mercury 4 Nov 2002
10
Working with government, customers, Ports users
and Transnet was the only recipe that would
yield positive results
INTERIM ADVISORY BOARD
Co-chaired by Transnet and the Shipping lines
TPT
TFR
CLOF (Shipping Lines)
Shippers Council (Cargo Owners)
NPA
SAAFF (Road haulers)
Technical Task Team
Landlord Marine Services
Port Operator
Freight Forwarders
Operations Audit Team
Rail Operator
Shipping Lines
Cargo owners

• This team met every 2 weeks for 2 years
• The board defined and set KPIs of what we
  wanted to measure each supply chain partner
• We had a media black out Nobody spoke to the
  media except for the 2 chair persons

11
The advisory board used the Analysis Tool
Enabling Blocks Methodology
COSMOS FUNCTIONALITY
EQUIPMENT MAINTENANCE, STRUCTURE, DE- PLOYMENT,
PROCUREMENT AND CONTRACTS
ORGANISATIONAL STRUCTURE AND FACILITATION
EB 1
EB 2
EB 3
HOUSEKEEPING STRATEGY AND DISCIPLINE
EB 4
INCENTIVE SCHEMES
TRAINING
OPERATIONAL STAFFING LEVELS, SHIFT PATTERNS AND
PROCEDURES
EB 6
EB 7
EB 5
Rail INTERFACE
OPERATIONAL SUPPORT AND FACILITATION
OPERATIONAL STRATEGIES
EB 10
EB 8
EB 9
OPERATIONAL INFRASTRUCTURE
THIRD PARTY
EB 12
EB 11
EB
enabling blocks
12
AGENDA
South Africas Experience in 2001
Lessons learnt in South Africa
Where are we now ?
Ports challenge in Kenya
13
What was actually done in the South African Ports
between 2001 to 2007
Initiatives and programmes that were put into
place during the period of congestion

• Additional Capacity
• Existing general cargo berth in Durban was
  converted to a container handling facility which
  is now a fully fledged container Terminal
• Re-configured vessel calls to other ports in
  South Africa by using ports of PE Cape Town
• Operational Infrastructure
• Purchased 6 cranes (3 Liebherr and 3 Impsa
  cranes) initially, and later placed an order for
  24 cranes
• Purchased over 225 straddle carriers over a 3
  year period
• Enhanced vessel change over from 4hours to under
  2 hours by planning better with marine services
• Increased rail capacity from 3 trains to 5 train
  from Gauteng to Durban
• Systems enhancements
• COSMOS re-configuration (Planning modules)
• Introduced SAP Maintenance Module

• People
• 65 Sri Lankan trainers were brought in to train
  development our Operator skill levels through a
  best practice programme
• Introduced a bonus system for operational staff
• More open license pilots were introduced to cater
  for increased demand on larger vessel sizes
• Build a cohesive team for a greater team spirit
  with intensive and continuous communication
  strategies
• Organisational design
• Reconfigured integrated organisational structure
  of DCT
• Workshop structures were revised shift patterns
  changed to meet customer demands
• Commercial
• Introduced Container Terminal Operations contract
  (CTOC) which guaranteed berthing on arrival
• Reward and penalty clause embedded in the
  contract for higher productivity performances
• Penalized poor customer behavior in CTOC to
  ensure compliance to ETA and planning information
  before vessel arrivals

14
Lessons learnt in South Africa

• Commitment to resolve issues without assigning
  blame to any particular supply chain partner, but
  work in the interest of the country
• There must a common platform e.g.. an advisory
  board or a forum where all shipping lines, port
  operators, cargo owners etc that can debate and
  make decisions to help ease the situation.
  Ideally the forum should be co-chaired to
  maintain impartiality
• To resolve the congestion you will have to work
  intimately with shipping lines, cargo owners,
  port, road and rail operators whom you still want
  to retain as customers
• Involve Unions at an early stage
• Agreeing a common set of KPIs is an important
  milestone to measure all partners in the supply
  chain
• There must be measurements taking place
  regularly by the advisory board/forum at least
  every 2 weeks and thereafter monthly once the
  system sees improvement
• South Africa had the benefit of using other
  ports in the system (Cape Town Port Elizabeth)
  which eased the problem in Durban Container
  terminal
• Creating capacity ahead of demand is crucial to
  maintain a fluid port system

15
AGENDA
South Africas Experience in 2001
Lessons learnt in South Africa
Where are we now ?
Ports challenge in Kenya
16
RESULTS FROM THE EFFIECIENCY IMPROVEMENTS AND
COLLOBORATIVE WORK
186.4
TPT capital investment prior to Transnets
turnaround strategy
TPT capital investment since Transnets
turnaround strategy introduced
1 976
1 740
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
DCT throughput prior to turnaround
strategy Monthly TEUs (Jun 01-Dec 04), 000
DCT throughput after turnaround strategy Monthly
TEUs (Jun 05-Dec 07), 000
Surcharge introduced
Jun 01
Dec 01
Jun 02
Dec 02
Jun 03
Dec 03
Jun 04
Dec 04
Jun 05
Dec 05
Jun 06
Dec 06
Jun 07
Dec 07
Source Team analysis
17
TPT PERFORMANCE TREND AT DCT
52
Average vessel productivity distribution Percent
October 2002
March 2004
81
72
gt20
18-20
lt12
12-14
14-16
16-18
gt20
18-20
lt12
12-14
14-16
16-18
May 2008

• 81 of vessels performed below 16-18 container
  moves per hour (CGH) in 2002
• In May 2008, 80 of vessels performed above 16
  container moves (CGH)
• Average performance at DCT for 2007/08 was 22.5
  container moves (CGH)
• Target for 2008/09 is 25 container moves (CGH)

80
gt20
18-20
lt12
12-14
14-16
16-18
Source Team analysis
18
BREAKDOWN OF TARGET TIMES FOR VESSEL CHANGEOVER
0.15
Breakdown of vessel changeover duration for
different target times Hours
TPT
Stevedores
Target 4 hrs
TNPA
Vessel
Finished unlashing to first crane move
005
Stevedores boarding to finished unlashing
050
Target 3 hrs
Gangway ready to stevedores boarding
010
003
Berth arrival to gangway ready
015
040
Target 2 hrs
007
Marine operations (excl. no demand no space at
109)
013
000
125
025
005
010
110
Requested sailing time to berth departure
015
050
Finish lashing to requested sailing time
040
015
015
015
000
Last crane move to finished lashing
020
017
015
Source Vulindela team
19
PERFORMANCE AGAINST PLAN SIGNIFICANT
OPERATIONAL EFFICIENCIES ACROSS OPERATING
DIVISIONS
620,204
Growth in key commodities
Key Performance Indicators
Rail
Total freight (billion vol.km)
Net ton km per wagon (GFB)
106
9.9
105
105
105
103
681,684
100
620,204
2002/03
03/04
04/05
05/06
06/07
2007/08
2007/08
2003/04
Ports
Containers (Thousand TEUs)
Container moves per crane hour
ContainerTerminals
3,717
Currently 25
3,400
3,010
2,864
2,528
2003/04
04/05
05/06
06/07
2007/08
Durban
Cape Town
Port Elizabeth
Pipe-lines
Refined (million Ml/km)
Percent capacity utilization
3.4
3.1
2.8
2.8
2.5
2003/04
04/05
05/06
2007/08
06/07
Refined
Crude
Gas
20
CORRIDOR APPROACH IS ESSENTIAL FOR SERVING SOUTH
AFRICAS CUSTOMERS
Benefits from corridor approach
NOC

• Transnet as a network business needs to operate
  in an integrated manner throughout the logistics
  corridor
• Provide a common transformation and long-term
  planning backbone
• Maximise growth opportunities across all
  operating divisions (rail, port, pipeline)
• Capture operational and functional synergies
  across operating divisions through integrated
  solutions
• Improve efficiency and effectiveness of logistics
  supply chain
• Providing an end-to-end logistics service to
  customers
• Provide optimal capital base for network
  infrastructure evolution
• Focus on key commodities and aligning capital
  investment to high-growth potential corridors

Procure-ment
Mainten-ance
Functions
Yards
Projects
Sentrarand
Yard
Kaserne
Depot
Corridors
Newcastle
Port
Example
Danskraal
Durban
DCT
Beit Bridge
Messina
Louis Trichardt
Soekmekaar
Ellisras
Thabazimbi
Pietersburg
Drummondlea
Phalaborwa
Zebediela
Vaalwater
Chroomvallei
Hoedspruit
Naboomspruit
Middelwit
Nylstroom
Steelpoort
Graskop
Northam
Marble Hall
Roossenekal
Rustenburg
Plaston
Komatipoort
Cullinan
Belfast
Witbank
Mafikeng
Machadodorp
Pretoria
Rayton
Ogies
Lichtenburg
Krugersdorp
Baberton
O/fontein
Sentrarand
Welgedag
Welverdiend
Hawerklip
Coligny
Jburg
B/plaas
Breyten
Vermaas
Bethal
Lothair
Potchestroom
Ottosdal
Klerksdorp
Orkney
Hotazel
Schweizer-Reneke
Wolwehoek
Standerton
Vierfontein
Pudimoe
Makwassie
Charlestown
Newcastle
Ancona
Westleigh
Vrede
Erts
Golela
Utrecht
Kroonstad
Sishen
Warden
Hlobane
Naroegas
Warrenton
Vryheid
Manganore
Whites
Arlington
Harrismith
Virginia
Glen H
Nakop
Postmasburg
Palingpan
Glencoe
Upington
Bultfontein
Bethlehem
Theunisen
Marquard
Ladysmith
Kimberley
Kakamas
Bergville
Winburg
Douglas
Nkwalini
Empangeni
Eshowe
Bloemfontein
Kranskop
Richards Bay
Ladybrand
Moorleigh
Sannaspos
Koffiefontein
Greytown
Belmont
Maseru
Prieska
Stanger
Howick
Hilton
Network
Underberg
Copperton
Richmond
Mid Ilovo
Donnybrook
Springfontein
Durban
Matatiele
Mandonela
Kelso
Bethulie
Franklin
De Aar
Aliwal North
Kokstad
Harding
Simuma
Sakrivier
Bitterfontein
Dreunberg
Barkley East
Port Shepstone
Noupoort
Jamestown
Maclear
Kootjieskolk
Rosmead
Calvinia
Schoombee
Hutchinson
Hofmeyer
Umtata
Queenstown
Tarkastad
Qamata
Beaufort West
Seymour
Klawer
Somerset East
Amabele
Klipplaat
Cookhouse
Blaney
Porterville
Fort Beaufort
Saldanha
East London
Prins Alfred Hamlet
Touwsrivier
Kirkwood
Atlantis
Ladysmith
Calitzdorp
Oudtshoorn
Alexandria
Worcester
Uitenhage
George
Avontuur
Patensie
Port Alfred
Franschhoek
Cape Town
Port Elizabeth
Stellenbosch
Riversdale
Mosselbaai
Knysna
Protem
Strand
Simonstad
Bredasdorp
21
SIGNIFICANT INVESTMENT ACROSS ALL DIVISIONS TO
REPLACE ASSETS AND CREATE CAPACITY
2
Transnet historic consolidated Capex (excl. SAA)
Investment
Key projects
R bn
2009- 2013
Growth strategy

• Cape Town container expansion
• Port of Ngqura construction
• Ngqura container terminal development including
  rail link
• Durban entrance channel widening

16
NPA
Ports
2008
10
TPT
2007
Investing 4 times more than 3 years ago
2006

• Coal export /iron ore line expansion
• Acquisition of 405 locomotives for GFB, iron ore
  and the coal line
• Maintenance/upgrade of rolling stock and
  infrastructure

38
TFR
Rail
2005
2
TRE
2004
Pipelines
12

• New multi-product pipeline

2003
2002
Specialist Units
2

• Business intelligence and building upgrades

2001
80
Total investment 2009-2013
22
AGENDA
South Africas Experience in 2001
Lessons learnt in South Africa
Where are we now ?
Ports challenge in Kenya
23
The Kenya Ports Challenge
456 000

• 22 increase in container traffic from 479355
  teus (2006) to 585367 teus (2007)
• There has been no injection of terminal capacity
• Automatation of the cargo handling system
• Users resisting due to redundancy or potential
  retrenchment
• Dwell time is high as shippers not collecting
  their cargo in time
• Rail service needs improvement
• Considering increasing of speed of locos
• Investing in new gauge rail lines
• Lack of space within the Port area
• Plans to acquire new land from the industrial
  commercial development corporation have failed
• Dwell time might be high
• All the above will lead to vessels delays which
  will cause an increase in freight costs for the
  end user

3 year container volume for Kenya
16
22
585 367
479 355
Container traffic In TEUs
436 671
2005
2006
2007
Source Containerization yearbook, 2008
24
Vessels expected between 23rd Sept 2008 4th Oct
2008
850
Container exchange volumes
600
400
800
0
1 000
1 200
200
ARNIS
TRAVE TRADER
DESPINA P
FLORA DELMAS
PROVIDENCE
HELVETIA
KOTA ANGGUN

• Dwell time of boxes in stack
• Collecting of cleared cargo
• Moving containers to ICDs/Bonded warehouse
• Bulk runs at night and off peak periods

MSC SIERRA
MSC NORMANDIE
SAFMARINE CONCORDE
HH WAVE
TERRA LUMINA
SAFMARINE BANDAMA
1 050
MSC HIMALAYA
1 100
SAFMARINE EUROPE
MSC EMILIA S
MOL ULTIMATE
5335 containers to be discharged and loaded
on the 4 October 2008
SAFMARINE BIA
1 200
LISSY SCHULTE
1 140
Discharge
Load
Source Business daily, Wednesday 24, 2008, page
17
25
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