Searching for rail market spaces in the high-value good market
Research note - 19 February 2025
Research by GAIN Group
Jan Havenga, Zane Simpson, Anneke de Bod, Stefaan Swarts, Henk Neethling, John Paul Kulumba, Werner van Greuning
In 2008, GAIN Group analysed the link (or missing link) between freight on rail and the value of freight on rail (see Figure 1).
Figure 1: Original view of rail volume and value in 2008
It should be widely known that railways mostly still compete in the low-value market only. While Transnet moved large volumes of freight in tonnage terms, the relative value of this freight is low, and the market share of valuable cargo, needed for the economy to grow most, is not utilising or being serviced by rail
This view was updated in 2011 (see Figure 2).
Figure 2: Revised view of rail volume and value in 2011
This story was presented to many audiences, including:
- Stellenbosch University students in 2018,
- the chief operating officer (COO) of Transnet Freight Rail (TFR) and its executive committee in 2018,
- attendees at the World Conference on Transport Research (WCTR 2019) held in Mumbai, India between the 26th and 31st of May 2019,
- the Government of China (during a keynote address) in 2019, and
- the National Department of Transport's executive committee in 2019.
As of 2022, the 2008 and 2011 views remain largely unchanged, with Figure 3 providing an almost timeless representation of rail in South Africa.
Figure 3: Latest view of rail volume and value – effectively unchanged
While Transnet has historically not operated in the space of high-value goods, there is most definitely a space for rail to service high-value goods. Utilising the Freight Demand Model™, the view of shiftable freight for tonnes, tonne-km and value, clearly shows this. Figure 4 provides an overview of the tonnage gap between current and target market shares for rail-friendly freight, not only highlighting what road freight volumes should be on rail but also what freight volumes should remain on road.
Figure 4: Rail’s current and potential tonnes for each segmentation type (FDM™ 2022)
As illustrated in Figure 4, 149.6 million tonnes (mt) and 367.1 mt of freight were transported by rail and road in 2022, respectively. Therefore, the country’s land freight transport amounted to 516.7 mt, of which rail and road represented 29% and 71%, respectively.
Of the current road freight volumes, 267.4 mt should remain on road, however, 99.7 mt should be transported by rail instead. Additionally, South Africa’s rail freight transport system missed out on 44.6 mt of freight that cannot be recovered by road freight transport (see ‘missing lost volumes’), which means the country could have transported 293.9 mt by rail (i.e. current rail including the shiftable road freight and avoided missing lost volumes) if the system worked optimally.
Theoretically, an optimal rail freight system in South Africa would represent an estimated 57% of land freight transport volumes, nearly double its current 29% tonnage share.
Figure 5 provides this gap in tonne-kilometres, while Figure 6 provides this gap in Rand value terms.
Figure 5: Rail’s current and potential tonne-kilometres for each segmentation type (FDM™ 2022)
As illustrated in Figure 5, rail and road freight transport represented 107.9 billion tonne-kilometres (btkms) and 171.7 btkms in 2022, respectively. Rail and road, therefore, represented 39% and 61% of South Africa’s 279.6 billion land freight tonne-kilometres, respectively.
Of the current road freight volumes, 115.5 btkms should remain on road, however, 56.1 btkms should be transported by rail instead. Additionally, South Africa’s rail freight transport system missed out on 26.5 btkms of freight that cannot be recovered by road freight transport (see ‘missing lost volumes’), which means the country could have transported 190.5 btkms by rail (i.e. current rail including the shiftable road freight and avoided missing lost volumes) if the system worked optimally.
An optimal rail freight system in South Africa would, therefore, theoretically represent an estimated 68% of land freight transport flows, which is more than double its current 39% tonne-km share. Based on the gap in current and tonne-km market share (see Figure 5), ideally functioning freight rail in South Africa would see rail market share increase as follows across its various freight segmentations:
- iron ore exports (16%),
- coal exports (31%),
- other export mining (51%),
- domestic mining (33%),
- finished palletised goods (30%), and
- rural extraction and delivery (9%).
Figure 6: Rail’s current and potential value for each segmentation type (FDM™ 2022)
Note that the value graph excludes the value of precious minerals and precious ore. Within this space of freight value that should shift to rail, a large portion of the valuable goods are motor vehicles, as well as goods which are handled in containers.