Transport and Communications Bulletin for Asia and the Pacific No.

78, 2009

THE ROLE OF DRY PORTS IN SOUTH AFRICA

* ** **
Erené Cronje , Marianne Matthee and Waldo Krugell

ABSTRACT
This paper presents a case study of the City Deep dry port terminal
in Johannesburg, South Africa. The findings show that City Deep functions
well in terms of service delivery and providing extra services to both
exporters and importers. However, a number of potential problems
regarding City Deep’s infrastructure were identified. It was found that train
and truck congestion within City Deep is an everyday phenomenon.
Importers and exporters prefer road transport to rail transport. This affects
not only the infrastructure at City Deep, but also that of South Africa. More
trucks on the roads exacerbate air pollution and road accidents, and
overloaded trucks damage South African roads. Therefore, City Deep and
the South African logistics system should focus on promoting rail transport
to the seaports, so exporters and importers will rely on both modes for the
transport of goods.

Keywords: transport costs, containerization, port efficiency, dry ports, inland

terminals, South Africa, City Deep

INTRODUCTION

From across the world there is clear evidence that exports can drive
economic growth and development. The African continent, however, faces
significant challenges of growth and development while its countries have not
been able to connect successfully to the world economy. Exporters from
African countries face adverse geography and poor institutions. In a 2001
study Elbadawi et al. (2001) found that domestic transport costs act as a
strong constraint to exports from Africa—a constraint that is even stronger
than that of international transport costs. Lowering domestic transport costs
in African countries can therefore contribute to exports and, more generally,
to economic growth and development. One way of lowering domestic

*
Demacon consulting, Pretoria, South Africa.
**
School of Economics, North-West University (Pochefstroom Campus), Potchefstroom, South
Africa.
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transport costs is to establish dry ports (or inland terminals) closer to

exporters and importers.

This paper presents a case study of the City Deep dry port terminal in
Johannesburg, South Africa. It is an interesting case for a number of reasons.
First, South Africa opened up its economy in 1994 and has since
implemented policies meant to encourage export-led growth. Second,
transport costs are relevant as South Africa trades mostly with countries in
the global north, which implies significant international transport costs. Also,
the majority of South Africa’s exports originate in the Gauteng region, which
is located 600 km from the nearest seaport, thus incurring significant
domestic transport costs. Therefore, for South African exports to remain
competitive and for the country to achieve export-led growth, it is imperative
to reduce the higher than average domestic transport costs (Ramos, 2005).

As suggested above, the establishment of dry ports can lower

domestic transport costs. The aims of this case study are to: (i) evaluate
South Africa’s current inland terminals, with a specific focus on City Deep,
located in Johannesburg, Gauteng; and (ii) determine whether or not the
Government of South Africa should invest in more dry ports. The remainder
of the paper is structured as follows: section 2 provides an overview of South
Africa’s spatial economy and the significance of transport costs for exports,
section 3 contains the case study of City Deep and section 4 concludes with
recommendations.

I. THE CASE OF SOUTH AFRICA

A particular characteristic of economic activity across South Africa

and across the globe is its density. Geographically, economic activity tends to
be unequally distributed and concentrated. In South Africa, 70 per cent of
gross domestic product (GDP) is produced in only 20 per cent of places.
What makes the South African case more interesting is that 37 per cent of
GDP and 60 per cent of exports originate in cities in the landlocked Gauteng
province (Regional Economic Explorer, 2006). This can be explained by
examining trade and extraction along with the social engineering of apartheid.

South Africa has six “large” cities. Johannesburg, the East Rand
(Ekurhuleni metro) and Pretoria (Tshwane metropo) are located inland in
Gauteng province. Durban, Cape Town, and Port Elizabeth (Nelson Mandela
metro) are the major port cities. Cape Town and Durban were first developed
in the seventeenth and eighteenth centuries as trading posts on the shipping
route between Western Europe and Asia. During the nineteenth century, this
role changed with the discovery of diamonds and gold in the interior. The port
cities developed from being stop-over and service points providing shipping
services, to being ports through which commodities were handled. Today this
dominance continues due to the importance of sea transport for South
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Africa’s international trade. Approximately 98 per cent of the volumes of

South Africa’s exports are conveyed by sea. The mineral wealth determined
the location and growth of the inland cities, Johannesburg, the East Rand
and Pretoria. The distances of the location of mining commodities, as well as
the extraction technology required in mining then influenced the pattern of
South Africa’s inland development. Where railways and electric power were
provided for mining, they also contributed to the development of the
manufacturing sector. Industries such as steel and mining, which are heavy
consumers of electricity, are predominantly located in the historic mining
areas whilst chemicals are concentrated heavily around Durban from where
the majority of the country’s crude oil imports are obtained (Matthee and
Naude, 2008).

In the twentieth century, apartheid reinforced the historical regional

development patterns induced by the emerging mineral-energy complex of
the nineteenth century with its homeland policies and Group Areas Act.
Support of inefficient industries in the homelands and the segregation of
cities created a spatial economy characterized by inefficient land use,
excessive transport costs, and underinvestment in transport infrastructure,
telecommunications and electric power. It also resulted in segmented labour
and consumption markets and created artificial internal barriers to trade
(Krugell & Naudé, 2005).

The cost of unequal development was paid particularly by the

manufacturing sector. Nel (2002) showed that, by 1970, South African had a
relatively advanced and diversified manufacturing sector but thereafter output
stagnated and employment declined. Contributing factors included: declining
gold exports and gold prices, a reduction in global commodity demand from
the early 1980s, the debt crises of the 1980s, depreciation of the value of the
Rand, the imposition of sanctions, foreign exchange shortages, and skill- and
capital shortages. By the 1990s job losses occurred in places and
deindustrialization took place.

Against this background of spatial inequality, the new democratic

government has, since 1994, been opening up the economy. This transition
again changed the spatial structure of economic activity in South Africa
(Naudé et al., 2000). South African industries were now exposed to
international competition. Subsequently, industries that could not cope with
increased levels of competition closed down (for example, the textile industry
in the Western Cape contracted significantly). Other industries that were able
to move into new markets thrived (for example, the motor industry in the
Eastern Cape) (Naudé et al., 2000). The majority of manufactured exports
originate in the vicinity of one of the major export hubs, namely the City Deep
dry port (situated in Gauteng), Durban harbour (situated in KwaZulu-Natal),
Port Elizabeth (situated in the Eastern Cape) and Cape Town harbour
(situated in the Western Cape) (Matthee and Naudé, 2008).

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South Africa’s transport costs accounted for around 13 per cent of

GDP in 2003, which is high in comparison with other emerging markets.
Brazil’s transport costs, for example, are only 8 per cent of their GDP
(Ramos, 2005). Transport costs increased by 11 per cent over the last five
years and the overall logistics costs remained flat at 15.2 per cent of GDP
(CSIR, 2004). According to the CSIR (2001), the biggest driver of logistics
costs in South Africa is transport costs. Transport costs make up 78 per cent
of the secondary sector’s total logistics costs and 60 per cent of the primary
sector’s (CSIR, 2001). Logistics rely heavily on multimodal transport and
containerized freight transport to help decrease logistics cost, and thus
transport costs, in South Africa.

II. THE CASE STUDY OF CITY DEEP

Intermodal transport has been proven to reduce domestic transport

costs, as it utilizes different transport modes in a productive manner
(Rodrigue et al., 2006). For an intermodal transport system to exist, it needs
the necessary infrastructure which is provided by inland terminals. Moreover,
inland terminals act as inland ports for container traffic transferring containers
between rail and truck for either import or export purposes (DoT, 1997).

South Africa has six major inland terminals and nineteen satellite
depots that are strategically located to connect with its seaports. Each of
these terminals handles containers, cars and bulk traffic (Transnet, 2009).
South Africa’s inland terminals include City Deep (Eastcon and Kazcon),
Belcon (Saldanha, Ashton, and Dalcon), Deal Party (East London and
George), Pretcon (Phalaborwa, Witbank, Polokwane, Nelspruit, and Piet
Retief), Bayhead (Newcastle), and Bloemfontein (Kimberly, De Aar,
Kroonstad, Kakamas, and Bethlehem). These inland terminals and satellite
depots are controlled by Transnet Freight Rail, the largest division of South
Africa’s public transport company, Transnet Limited (the sole shareholder is
the South African government), specialising in the transport of freight
(Transnet, 2009).

City Deep Inland Container Terminal was the first inland container
terminal built in southern Africa in the 1970s. It is situated in Gauteng, just to
the south of the Johannesburg Central Business District (CBD) and is close
to the industrial areas of Johannesburg and the greater Gauteng province
(DoT, 1997). City Deep is centrally located, as most inland exporters of
manufactures are located within a 50 km radius. The nearest seaport to City
Deep is the port of Durban (at a distance of approximately 600 km). City
Deep is the largest container terminal in South Africa and handles three
categories of containers, namely import traffic, export traffic, and domestic
traffic. Import traffic includes the management of containers that enter
through a South African port, such as the Port of Durban, with a domestic or
cross-border destination further into Africa. Export traffic includes the
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management of containers leaving South Africa through national ports, and

domestic traffic includes the management of containers transported within
South Africa’s borders (Transnet, 2009).

Although South Africa has six inland terminals mentioned above, City
Deep is the only inland terminal that functions as a dry port, as it is the only
inland terminal where customs clearance of goods takes place. The other
inland terminals handle only domestic traffic, whereas City Deep handles
container traffic both from abroad and domestically.

Although City Deep’s infrastructure is owned and operated by

Transnet Freight Rail, privately owned companies are allowed to use City
Deep’s infrastructure and facilities. Examples of these include companies at
Kaserne and SACD (South African Container Depot). This case study of City
Deep is based on an interview conducted within one of these privately owned
companies, who for confidentiality reasons, wishes to remain anonymous.
The purpose was to gather information on the service delivery of South
African inland terminals, with specific focus on City Deep. A questionnaire
was used during the interview with a number of open-ended questions that
asked the following information: the current economic performance of the
terminal, the terminal’s location in relation to the spatial allocation of the
production and consumption centres, operation areas of the City Deep
container terminal and the general flow of transport. The information gathered
is discussed in terms of the promotion of inland container transport as a
means through which domestic transport costs in South African can be
reduced.

A. Functions of the terminal

Intermodal transport is used to connect City Deep with South Africa’s

seaports and other inland terminals. The first part of the interview was to
establish how the private companies operated within the City Deep terminal.

Transport

The City Deep container terminal handles approximately 1,500

containers of imports and 2,600 containers of exports per day. Both trucks
and trains are used to transport goods from City Deep to the ports and vice
versa. Transnet Freight Rail handles the private operators’ rail transport of
goods and containers to and from City Deep.

Trains arriving in Johannesburg are split into five different sidings.

Each siding is allocated to one of the companies operating in City Deep. The
containers carried on the trains belong to the shipping lines and usually
contain imports. The trains deliver the containers at the siding of the
company that is to handle the containers on behalf of the importer. The
company then unloads the container with its content. Afterwards the

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container is filled with goods on behalf of an exporter. These goods are to be

exported on the shipping lines to which the container belongs. The container
is loaded onto the train and railed to the harbour.

If road transport is preferred, then clients may choose their own

freight hauler for the delivery of containers and goods. City Deep is also
connected to other types of terminals (e.g. airports) via road transport. The
nearest international airport connected to City Deep is OR Tambo
International. City Deep only delivers the containers and or goods, the clients
have to arrange for the loading of the container at the airport themselves.

Other functions

Several other functions are also performed by the companies

operating at City Deep. These functions include wagon storage, providing
trans-shipment tracks for train loading and unloading operations at the
terminal interchange zone, from/to a hauler, or when lifted from or placed on
a rail wagon at the railhead, conveyance between the interchange zone or
railhead and the stacking area, providing storage and buffer lanes for
intermodal transport units, storage of containers, the handling of containers
by means of a container crane and/or gantry crane, loading and driving lanes
for the trucks, providing an internal road network and custom clearance.

Customs

Customs clearance is conducted by the border police at City Deep

who operate on a twenty-four hour basis to control illegal trade in drugs,
stolen vehicles, firearms and counterfeit goods. The terminal has three gates:
one is for the entry of trucks delivering containers, one is a rail track gate for
the entry and exit of trains, and the third gate is an exit gate for trucks. The
gates are only opened when a train or truck enters or leaves the terminal.
Every gate has a twenty-four hour security guard. Containers of imports
arriving at City Deep are subject to a number of import controls. The City
Deep border police and customs must inspect all the necessary documents,
description codes, seals on the containers, and check that imports comply
with the import/export regulations pertaining to South Africa to ensure that no
fraud or any other irregularities have occurred.

Value added services

The companies operating at City Deep also offer specialist services.

For example, the client is offered confirmation that the goods are packed in
the correct container before the container is loaded onto the train or truck.
Goods arriving from Africa to South Africa for further exporting are usually not
packed in containers. The companies’ personnel pack the containers and
take a photograph of the container before it is sealed. The photo is then sent
to the client. As soon as the client gives the go-ahead, the container is

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shipped. Quality control functions may also be performed on behalf of the

clients. Samples of raw materials are taken to check the quality of the goods.
The report is sent to the importer ensuring him that goods of the correct
quality have been shipped. Another specialist service is one provided to the
shipping lines. The private companies have maintenance divisions equipped
to repair broken containers on behalf of the shipping lines they belong to.

B. Problems and challenges

The second part of the interview asked the private operator about
what they regarded as the problems and challenges facing their operations in
City Deep. The biggest obstacle for the effective operation of City Deep is
infrastructure. Train and truck congestion within City Deep is an everyday
phenomenon. The existing infrastructure cannot handle the number of trains
and trucks entering City Deep. Container blockages of approximately 5,400
containers can take up to six weeks to clear. As a result, shipping lines may
impose a port congestion surcharge on imports and exports because of
blockages caused by container delivery hold-ups. Also, clients prefer road
(truck) transport to rail transport. Therefore, the number of trucks entering
and leaving City Deep causes congestions and delays. This not only affects
the infrastructure at City Deep, but also that of South Africa. Roads are
rapidly deteriorating (in many cases trucks are overloaded) and congestion
on the national roads increase the amount of air pollution, road accidents and
collisions. Another reason that clients prefer to make use of road (truck)
transport is because transport by rail takes much longer to deliver the goods
than by road.

Theft is also a major problem of rail transport. When cargo is

transported from Johannesburg to Durban by rail, regulations require that the
drivers on the train have to be changed every two to three hours. This implies
that the train stops at a pre-determined station and the driver leaves the train.
In many cases the train stands at that particular station for hours at an end
before the next driver commences the next leg of the journey. The cargo is
left unprotected at these stations and risk of theft and pilferage is high. A
client or freight forwarder cannot check the location of the cargo during its
journey to the container depot in Durban. In comparison, when the cargo is
transported by vehicle from Johannesburg to Durban, the cargo is also at
risk, but the risk is lower. The drivers are also legally required to stop every 3
to 4 hours of the journey. The driver stops at a designated rest stop for a few
hours before carrying on to the next rest stop. The difference here is that the
driver of the vehicle generally does not leave the vehicle without supervision.
The driver usually has an assistant driver and they take turns at guarding the
vehicle. Most transport companies also protect their vehicle fleets by satellite
tracking and protection services. This implies that the vehicle is under 24
hour a day security and can be tracked at any time during the journey
(Matthee, Grater and Krugell, 2007).

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Thus, the question becomes whether the establishment of another dry

port would alleviate the problems faced by City Deep. The answer appears to
be no. The respondents indicate that although there is currently congestion,
the volumes of trade do not justify the costs involved in developing a new dry
port. They believe that the Government of South Africa, via Transnet, should
rather invest in upgrading the existing infrastructure. The upgrading of
infrastructure should include adding a sufficient amount of wagons for trains
to minimize time delays. This type of upgrading would also serve the overall
purpose of promoting rail transport in South Africa.

The role of the government in customs clearance also has to be more

hands-on. Transnet Freight Rail must also become a more active partner
interacting with the private companies in City Deep. For example, Transnet
Freight Rail could establish an undertaking that, as the carrier of freight, it will
require a declaration from the client that the contents of the container are as
described on the form. The Transnet Freight Rail document could then be
compared with the customs declaration, and these two independent systems
could then be used for cross-referencing and profiling.

CONCLUSION

The purpose of this study was to gather information on the service

delivery of South African inland terminals. City Deep is South Africa’s major
dry port and is linked with an intermodal transport system to the major
seaports in South Africa. City Deep could reduce transport costs in South
Africa, as it provides the transport infrastructure for containerization. City
Deep seems to function successfully in terms of service delivery and extra
services provided to both exporters and importers. It was found that it would
benefit City Deep to focus on making Transnet Freight Rail a more active
partner in both the logistics and operational processes. They could act as the
third party in the logistics process, leading to a reduction in transport costs.
As for the establishment of additional inland terminals or dry ports, the
government needs to invest more in the existing infrastructure, as the export
volumes do not justify the cost of building a new inland terminal.

This answers the question of whether dry ports can lead to a

reduction in transport costs. Dry ports have the benefits of the modal shift
from road to rail. Therefore, City Deep and the South African logistics system
must focus on promoting rail transport in order for exporters and importers to
focus on both transport modes for the transport of goods. This will also
enable South Africa to take its place in better and more competitive global
value chains.

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