TRANSNET PORT TERMINALS - STAYING AHEAD OF THE COMPETITION

ZEPH NDLOVU – GM: KZN OPERATIONS 1 JULY 2014

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WORLD ECONOMIC SITUATION

TABLE OF CONTENTS

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REGIONAL ECONOMIC GROWTH PROSPECTS

SA PORTS AND REGIONAL INTEGRATION

PORT DEVELOPMENT

FUTURE PLANS

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WORLD ECONOMIC SITUATION AND SEABORNE TRADE TRENDS

• >90% of world merchandise trade is carried by sea

• Industrial production world GDP, merchandise trade and seaborne shipments continue to move in tandem.

• With demand for shipping services being “derived”, the performance of maritime transportation and seaborne trade is largely determined by developments in the world economy and international trade.

• Developing countries are

playing a bigger role globally as well as regionally, with deeper South–South linkages and trade integration.

The OECD industrial production index and indices for world GDP, merchandise trade and seaborne shipments (1975–2013), (1990 = 100)

Source: UNCTAD secretariat

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GLOBAL TRADE DRIVES CONTAINERISATION

• > over 50% of the world merchandise trade volume is containerised.

• Asia handles more than 60% of the global container trade (had +/-48% - 49% share in 1994).

• Container penetration in developing nations such as India, Africa, Latin America is expected to continue to grow.

• Container volumes handled by Transnet Port Terminals grew by an average of 6% between 2004 and 2013 while the South African GDP grew by an average of 3.3%.

Global container trade, 1996–2013 (Millions of TEUs and percentage annual change)

Source: Based on Drewry Shipping Consultants

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AFRICA POISED FOR ACCELERATED ECONOMIC GROWTH

• Africa has about 20% of the world’s land mass and 16% of its population, but only 2.5% of its GDP.

• A key driver of Africa’s growth has been its richness in natural resources.

• Africa’s population is the other major driver of growth.

• Population projected to increase from 1bn in 2010 to about 1.8bn in 2040.

• 8 African countries among the world’s 20 fastest-growing countries (World Bank)

Historical and forecast population in Africa

Source: United Nations (2011)

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Challenges facing African Ports

Monrovia (Liberia)

Lome (Togo)

Port Louis (Mauritius)

Toamasina (Madagascar)

Takoradi (Ghana)

Abidjan (Côte d'Ivoire)

Lagos (Nigeria)

Cotonou (Benin)

Walvis Bay (Namibia)

Tema (Ghana)

Cape Town (SA)

Dar es Salaam (Tanzania)

Tanga (Tanzania)

Mombasa (Kenya)

Nacala (Mozambique) Beira

(Mozambique)

Maputo (Mozambique)

Richards Bay (SA)

Durban (SA)

East London (SA) Ngqura (SA)

Libreville (Gabon)

Pointe Noire Matadi (Congo)

Douala (Cameroon)

Source: Team analysis

Port Elizabeth (SA)

Lobito (Angola)

Luanda (Angola)

Algiers (Algeria)

Port Said (Egypt)

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• South Africa is distant from its key trading partners

• Maritime transport costs is a significant component of total transport costs

• South Africa is strategically placed to service Southern African, Asian and South American

trade routes

• SA can establish itself as a global transhipment hub focused on certain trade routes

Intensity of global shipping

ECONOMIC SIGNIFICANCE OF OUR PORTS

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Length of SA Coastline = 2 798km

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SOUTHERN HUB FOR WORLD SHIPPING ROUTES

The position of South Africa’s ports system enables it to access to South-South trade, Far East trade, Europe & USA, East & West Africa regional trade

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Shortest Trade Route between Shanghai and Santos is via South Africa 11,270nm = 22 days @ 21 knots via Panama Canal13,130nm = 26 days + transit fee via Suez Canal 13,590nm = 27 days + transit fee

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8

Notteboom, Theo E. "Shibboleth Authentication Request." Sciencedirect.com. ScienceDirect, May 2012. Web. 10 Mar. 2014. University of Illinois: Illinois Business Consulting, March 2014

Over 368 million tonnes pass through the Suez Canal vs 6.46 million tonnes through Ngqura annually

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9 Notteboom, Theo E. "Shibboleth Authentication Request." Sciencedirect.com. ScienceDirect, May 2012. Web. 10 Mar. 2014. University of Illinois: Illinois Business Consulting, March 2014

Criteria analyzed in the comparison between Cape and Suez routes

Criteria Analysis

Dimensions of Criteria Via Suez Route Via Cape Route

Distance -Distance in nautical miles E.g. Singapore to Buenos Aires

Less favorable at 12,292 nm

More favorable at 9,336 nm

Transit Time

-Sailing times -Dwell time at interlining terminal -Canal transit time -Delays E.g. Singapore to Buenos Aires

33 days

26 days

Cost

-Handling rates at interlining terminal -Ship operating costs -Canal transit fees -Port dues

Lower due to vessel size provides economy of scale

Higher

Other factors -Piracy attack/Political turbulence Rising Few

-Capacity Full Under-utilized

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10

• High port fees and taxes can affect the economic viability of stopping at a port

Port Fees & Taxes

• The amount of time it takes for cargo to clear customs has an impact of time sensitive goods

Customs Efficiency

• If ports are highly congested, SSS is not viable

• Post-port logistics can impede traffic growth if infrastructure issues persist

Capacity to Handle Traffic

• Ports with low berth depths or shorter wharf lengths can impede the use of larger ships

Port Specifications

Factors which affect the economic viability of stopping at a port

University of Illinois: Illinois Business Consulting, March 2014

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• Ports with no expansion plans in place to meet future demand could create bottlenecks and need to be critically evaluated

Expansion Plans

• Countries imposing special import tariffs to correct trade imbalances could have potentially drastic consequences for a new shipping line

Trade Imbalances

• Being a government-linked organization, pirate attacks could snowball into larger issues Pirates

• Lines operating in countries undergoing political changes could face dire consequences if caught at the wrong time and the wrong place

Political Instability

"Port of Cotonou, Benin." Bollore Africa Logistics. Bollore Africa Logistics, n.d. Web. 11 Mar 2014. United States. Federal Research Division. Country Profile: Kenya. Washington, DC: , 2007. Web. University of Illinois: Illinois Business Consulting March 2014

Geo-economic factors affecting port viability

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THE ROLE OF TRANSNET IN PORT DEVELOPMENT

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"Regional and continental infrastructure development is of fundamental importance to the realisation of Africa’s economic growth and development imperatives. As regional leaders, we carry a particular responsibility to serve as champions in driving industrial and infrastructure development both at the regional and continental levels.“ Jacob G Zuma, President of the Republic of South Africa and Chairman of the Committee of Heads of State of the Programme for Infrastructure Development in Africa (PIDA)

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TRANSNET STATE OWNED COMPANY LTD - OPERATIONAL DIVISIONS

• 16 Cargo Terminals operating across 7 SA ports

• Revenue 7 bn

• Assets R12.3 bn

• 6 210 employees

Supporting

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• 8 Commercial ports along 2 943km of coastline

• Revenue R8.4bn

• Assets R60.6 bn

• 3 420 employees

• 20 500 km of railway track

• 182 million tons of freight

• General freight & 2 heavy haul export lines

• Revenue 27.6 bn

• Assets R61.3 bn

• 26 850 employees

• Support TFR for rolling stock and TPT for lifting equipment maintenance

• Revenue 11.2 bn

• Assets R7.6 bn

• 12 570 employees

• 18 billion litres of petroleum products and gas through 3 000 km of pipelines, mainly to Gauteng

• Revenue 2.1 bn

• Assets R19.3 bn

• 630 employees

• R300 billion of capital investments over 7 years

• CSI in Education, Health, Sport, Arts & Agriculture

• Property Management

• Transnet Schools

Capital Projects Transnet

Foundation Property Schools

Transnet Pipelines

(TPL)

Transnet Engineerin

g(TE)

Transnet Freight

Rail (TFR)

Transnet Port

Terminals (TPT)

Transnet National

Ports Authority (TNPA)

Pipelines Rail Ports

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Africa Strategy Ports

Rail

Pipelines

• PMAESA; • Promote SA as a regional hub for Africa; • Port pairing initiatives/Port co-operative

agreements; • Regional port plan to support SA’s hub

port; • Transnet to assist Regional ports to

develop their ports master plans, dredging;

• Maritime School of Excellence for marine training programmes

• Focus on increasing cross border volumes; • Review our approach to rail concession

agreements; • Maintenance services to the regional

market on Loco’s/wagons and port equipment;

• Sale of wagons and Loco’s; • Rail operations;

Regional Integration

• Advisory services given our technical competency

• Opportunities to operate and/or construct pipelines

• Review our role in the development of the North - South corridor;

• Africa conference (Port/Rail/Pipeline);

• MOU’s between African countries ;

• Training/Skills development;

Visible presence

Contribution in developing other African ports

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OVERVIEW

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• Transnet Port Terminals provides cargo handling services at 16 terminal facilities in seven ports to a wide range of customers including shipping lines, freight forwarders and cargo owners.

• Operations are in containers, bulk, break-bulk and automotives.

• We invest in state-of-the-art cargo handling equipment (ship-to-shore cranes, straddle carriers, rubber-tyre gantries, tipplers, conveyors) and manage the logistics interface with inbound and outbound rail and trucking carriers.

• We are proud of the implementation of the NAVIS-terminal operating system and the certification of all our terminals to ISO standards.

• Transnet Port Terminals is Africa’s biggest container terminal operator in terms of volumes handled.

In line with Transnet’s new market demand strategy (MDS) and related investments, Transnet’s Port Terminals are currently expanding in response to growing business in the country. Expansion includes creating storage capacity, the replacement of old equipment and upgrading of software.

TRANSNET PORT TERMINALS

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Transnet’s Integrated Network is Underpinned by a Limited Number of Key Corridors

7. Saldanha Bulk (Export iron

ore), Breakbulk

6. Cape Town

Containers, Breakbulk

4. Ngqura Containers

3. East London Containers, Breakbulk, Agri-Bulk, Automotives

1. Richards Bay Bulk (Export coal, magnetite, Chrome), Breakbulk

2. Durban Containers, Breakbulk, Agri-Bulk, Automotives

5. Port Elizabeth Containers, Breakbulk, Bulk, Automotives WESTERN CAPE PORTS

EASTERN CAPE PORTS

KZN PORTS

In 2012/13 TPT handled: 4.24 Million Containers 75.3 Million Tons of Bulk Cargo 9.9 Million Tons of Break-Bulk 674 Thousand New Automotives

TRANSNET PORT TERMINALS OPERATES A COMPLIMENTARY PORT SYSTEM

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A ship in the harbour is safe, but that's not what ships are built for.

William Shedd

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• Transnet’s Market Demand Strategy (MDS) will see R300bn spent over the next seven years to create freight capacity before demand across rail and ports infrastructure and equipment in South Africa.

• Of this amount, TPT is poised to spend R30bn and TNPA R47bn to boost port operations and facilitate unconstrained growth. The MDS sets out how Transnet intends to grow revenues and business from its operation over the next seven years.

• Never before has any company invested so aggressively in creating capacity ahead of demand on the African continent.

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INFRASTRUCTURE DEVELOPMENT

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19 Source: Africa Team analysis

Market Demand Strategy - 2013 to 2020

• R300bn Transnet-wide capital investment programme

over next 7-years

• Expanding rail, port and pipeline infrastructure

• Increase in capacity to meet market demand

• Continued financial stability and strength

• Significant productivity and operational efficiency

improvements

• Shift from road to rail – reducing the cost of doing

business and carbon emissions

• Enabling economic growth

• Job creation, skills development, localisation,

empowerment and transformation opportunities

• TPT will invest R30bn

Divisional split (Rbn)

11

30

47

4

201 4

Other

TPL

TPT

TNPA

TRE

TFR

Other

Commodity Split (Rbn)

30

26

3 9

24

25

32

151

Other Bulk

Break Bulk Piped Products

Containers (Ports)

Export Iron Ore

Export Coal

GFB

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20 Source: Africa Team analysis

Market Demand Strategy - MDS INVESTMENTS FOR TPT Port View, Replacement Vs Expansion, Infra Vs Equipment

Civil / Infrastructure vs

Cargo Handling Equipment

TPT 7-year Capex Programme (R30bn):

TPT Year 1 (2013/14) Forecasted spend (R 1,859m): Infra vs. Equipment, Port View, Replacement vs. Expansion

Cargo Handling Equipment R 1,369m (74%)

Civil / Infrastructure R 489m (26%)

RBY R 550m (30%)

DBN R 513m (28%)

NGQURA R 528m (28%)

SLD R 116m (6%)

CTN R 106m (6%)

PE / EL R 45m (2%)

Port View

Replacement vs. Expansion

Total ETC

7 Year Plan

Year 1

2013/14

Year 2

2014/15

Year 3

2015/16

Year 4

2016/17

Year 5

2017/18

Year 6

2018/19

Year 7

2019/20

TPT 29 677 1 859 2 827 4 772 5 496 5 247 5 241 4 235

Rbn

Expansion R 789m (43%)

Replacement R 1,069m (57%)

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TPT 10-YR CAPEX HISTORY (Rm) Investment climbed from R131m in 2001/02, peaking at R3.2bn in 2008/09

TPT Investment (R2,363m) (5 years: 2001/02 to 2005/06)

TPT Investment (R10,277m) (5 years: 2006/07 to 2010/11)

2004/05

2003/04

2002/03

2001/02

2005/06

2009/10

2008/09

2007/08

2006/07

2010/11

Port concessioning

dilemma

Infrastructure backlog catchup & expansion drive

Global recession & investment

cutbacks

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7

2012/13

2011/12

2010/11

2008/09

2013/14

2017/18

2016/17

2015/16

2014/15

2018/19

3200 2337 913 1137 2551 1859 3492 7670

9545

2812 2670

2009/10

Boom-time Ends

Global recession Market Demand Strategy

TPT R30bn 7yr Investment Plan

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IMPACT ON JOB CREATION

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MDS is expected to create 15,000 direct and up to 588,000 indirect job opportunities across the economy

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• The Port of Durban is undergoing a multi-year project to ramp up of capacity ahead of projected demand.

• Planned extension of the Pier 1 terminal into Salisbury Island will increase current capacity from 700,000 TEUs to a potential 1.3-million TEUs by 2016.

• Pier 2 capacity is to be increased from 2.1 million TEUs in 2011/12 to 2.5 million TEUs by 2013/14 and 3.3 million TEUs by 2017/18.

• Berths 203, 204 and 205 on DCT’s North Quay is currently being taken out of service one at a time to undergo deepening and refurbishment over a 74 month period which started in June 2012.

• Container capacity is also being created in other niche terminals such as the Durban RO-RO and Maydon Wharf Terminal (a predominantly break-bulk and RORO facility, with specialised capacity to handle containers), through the acquisition of new equipment, such as mobile cranes, and various infrastructure upgrades to deal with the container traffic diverted from DCT during the capacity upgrade.

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CAPACITY AHEAD OF DEMAND

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Automotive Terminal

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THE AU HAS IDENTIFIED 14 CORRIDORS AS THE MAIN AFRICAN CORRIDORS THAT NEEDS DEVELOPMENT

1 Kenitra-Casablanca Corridor

2 Greater Cairo Region

3 The Dakar-Touba corridor (Touba-Mbackѐ)

4 The Greater Ibadan-Lagos-Accra (GILA) urban corridor

5 The great Haoussa-Yoruba-Anshanti city triangle (GHAYA-CT)

6 The Emerging Luanda-N’Djamena corridor

7 The Kampala-Entebbe corridor

8 Nairobi metropolitan region

9 Walvis Bay corridor

10 North South corridor (Cape Town-Johannesburg-Harare-Lusaka-Dar es Salaam)

11 The Maputo-Gauteng development corridor

12 Durban development corridor

13 Beira corridor

14 Maputo-Limpopo corridor

Source:E&Y Report – Time for Africa

3

4

2

13

10

12

11 14

9

6

5

7

8 6

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THE SA GOVERNMENT HAS DEVELOPED 18 STRATEGIC INTEGRATED PROJECTS (SIPS)

Unlocking the northern mineral belt with Waterberg as the catalyst

SIP5

SIP2

SIP3

SIP4

SIP1

SIP6

SIP7

SIP8

SIP9

Durban-Free State-Gauteng logistics and industrial corridor

South-Eastern node & corridor development

Unlocking the economic opportunities in North West Province

Saldanha-Northern Cape development corridor

Integrated municipal infrastructure project

Integrated urban space and public transport programme Green energy in support of the South African economy Electricity generation to support socioeconomic development

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THE SA GOVERNMENT HAS DEVELOPED 18 STRATEGIC INTEGRATED PROJECTS (SIPS)

Agri-logistics and rural Infrastructure

SIP1

5

SIP12

SIP1

3

SIP1

4

SIP1

1

SIP16

SIP17

SIP18

SIP10

Revitalisation of public hospitals and other health facilities

National school build programme

Higher education infrastructure

Expanding access to communication technology

SKA & Meerkat

Regional integration for African cooperation and development

Water and sanitation infrastructure

Electricity transmission and distribution for all

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10 NEW 18,000 TEU SHIPS ORDERED BY MAERSK - To be delivered over next 3 years

DBN EL PE CPT Ngqura

• Only Cape Town and Ngqura

can handle fully laden 4th

generation vessels

• Only Ngqura can handle 5th

generation vessels

• The average size of vessels

on order is currently 5,310

TEU

Draft 11.9m 10.2m 11.7m 13.8m 16.5m

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A New Port is required to handle these latest Generation Vessels…

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Port of Durban

Container Terminals

New Dig-Out Port

Automotive Terminal

Liquid Bulk Terminal

Breakwater and Entrance Channel

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PORT OF NGQURA DURBAN MPT TERMINALS – POINT RORO

FUTURE PLANS FOR DURBAN - Artist’s View of the new Dig-Out Port at ex-DIA Site

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DURBAN DIG OUT PORT - SUMMARY

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STATISTICS • 800 hectares of land to be acquired • 70 million m3 of material to be dredged • 3,5 million tonnes of rock • 2,5 million m3 of cement • 52 000 tonnes of reinforcing steel • 14,5 million m3 earthworks

VISION: • Largest container port in Africa • World-class port in terms of efficiency • World-class supply chain • Leading-edge “green” port • “Community” port • State-of-the-art security

EXPECTED BENEFITS • Expected Capex Impact on GDP of R48 billion • Expected Operational Impact on GDP of R56 billion (per annum at full operation). • Income/wages generation during construction – KZN impact – estimated at R24 billion • Expected to create approximately 64 000 construction jobs • Expected to create approximately 28 000 operational jobs • Reduced total logistics cost

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CONCLUDING REMARKS

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• Future freight transport demand in Africa is tied to growth in international trade.

• As ports would be increasingly challenged by intensified traffic, greater ship size and transhipment growth, ports capacity may have to be expanded in the future.

• Ultimately, all countries can benefit from a fully developed transport infrastructure in Africa.

• Greater collaboration will be key in optimising the entire logistics supply chain.

• Infrastructure development is one of the key drivers of the New Growth Path, Transnet has an important role to play in this new journey.

20 THANK YOU