Archive for Corporate Management

Transnet 7 year capital plan. Is it behind schedule?

Transnet Expects Capital Expansion To Cost R336.6 Billion

South Africa’s State-owned logistics firm Transnet expects its capital expansion plan will now cost R336.6 billion. This is an increase from R312.2 billion estimated year ago.

Transnet is 4-years into a 7-year plan to expand railways, pipelines and ports in South Africa. The increase is partly due to higher costs as the rand loses value against major currencies.

Reports are that in the first 3 years, Transnet spent R92.8 billion.

So at about 43% of the 7 year timeline, the capital plan is at about 27% of the 7 year target. Will the pace of Transnet’s capital execution quicken in the face of the 2013-17 expected global commodities slowdown?

What is your opinion?

Reports are that Transnet now channels about 45% of its investment into maintaining existing assets and the rest to increase its capacity.

Recent government reports confirmed that there is quite a bit of differed rail maintenance to catch up with.

According to published sources, Transnet’s total capital expenditure spending over the last 3-years now stands at R92.8 billion with the rail mode accounting for 74% of the total spent.

Does a Management Vacuum Hobble South Africa’s State-Owned Companies?

Published in Bloomberg, Aug 13, 2015

Rudderless and cash-strapped. Inadequate, Unstable is the assertion.

“To a large extent the ability of South African industries to compete globally is influenced by the effectiveness of our SOEs,” Mark Cutifani, the CEO of Anglo American Plc, said in a July 30 speech in Johannesburg.

“We are being constrained by expensive, yet inadequate and unstable electricity supply and by capacity limitations on state-run rail links.”

While a panel appointed by President Jacob Zuma in 2010 to review their performance recommended a strategy overhaul, new rules for appointing board members and a clearer funding approach for state companies, the government took no immediate action and the management oversight of several of them has deteriorated.

SAA, which last made a profit five years ago and is surviving on government guarantees, has had five CEOs in the past three years. Eskom, battling to plug a 191-billion rand funding gap, has had six CEOs in a decade. Its last permanent leader was replaced in March after six months in the job, while the chairman resigned two weeks later.

Governance Failure

Keeping the companies under state control has given the ruling African National Congress a greater influence over the economy and the appointment of key personnel. The management flux is “a huge governance failure,” Lumkile Mondi, an economics lecturer at Johannesburg’s University of Witwatersrand who served on the state review panel, said.

Transnet may be the exception provided it can adapt in these troubled times.

Are the above assertions true or false?  What do you think?

To read the entire article, go to

South Africa steel industry critical financial condition in collapsing global market

South Africa

With commercial assertions of possible steel finished product dumping, (as Chinese steel production at home exceeds the domestic market demand by customers), another South African steel company faces a financial crisis.

Too many assets on the Balance Sheet.

Too many employees given the business decline these past two years.

South Africa’s 2nd largest steelmaker Evraz Highveld Steel and Vanadium confirmed that it had temporarily ceased steel production at its steelworks. The company cited “working capital constraints and reduced domestic demand…” It also cited a “significant” increase in steel imports from China.

From raw resources like iron ore and met coal to scrap metal to charge steel furnaces, the global picture of the FOREST is that we can see a lot if the TREES “burning”.


Evraz Highveld Steel and Vanadium has issued a proposed restructuring notice in terms of South African laws Section that could see the country’s second-largest steelmaker potentially cutting half of its workforce.


The local labor organization are demanding discussion to how to fix the global market locally. Their leadership appears to be in self denial. Transnet’s grand 7 year market development plan now approaching year four of execution also appears to be unadjusted to these global market shifts and local South African customer changing logistics service demand of the rail and ports future services.

Sooner or later, Transnet will have to adjust. If not, it may over invest in unproductive added assets. What do you think?

For more news coverage, I encourage you to log onto the following links And

Anglo may cut one third of its jobs as steel industry market demand drops prices

What has taken senior iron ore – steel industry leadership so long to adjust their strategic plans? What are rail and port companies that provide logistics services to Anglo doing to resize their transport service assets?

From Reuters sources

Headline reads: Anglo to shed 50 000 jobs (over the long term) July 24 2015

Reporter is Silvia Antonioli

Anglo American, the fifth-biggest diversified global mining group by stock market capitalization, announced on Friday that it will move towards the elimination of as much as one-third of its work force. This appears to be a belated recognition of the strategic lower market steel demands and the consequences on iron ore prices in the face of an over supply of resources like iron ore.

It also admits it “might put up more assets for sale”…

It’s Board appears to finally reacting after the accelerating slump in metals prices that seen its stock shares decline to a 13-year low.”


The company posted a steep fall in first-half profit after a rout in prices of metals from platinum to iron ore. The company said “the next six months could be even worse.” “Quite frankly we didn’t expect the commodity price rout to be so dramatic… … CEO Mark Cutifani said during a presentation to market analysts. In the short term, management says it “would cut about 6 000 of its almost 13 000 office-based and other non-production job roles globally”…

If market conditions soured further the company would consider putting up for sale more of its underperforming assets than currently planned, Cutifani said.

Anglo employs 151,000 staff worldwide. I

N ITS PR NEWS RELEASES the company puts a best “spin” on the current financial results as it is about half way through its three year strategic change previously announced to investors. The economic interpretation from the analysts meeting is that they are going to have to move much faster in making changes and/or make bigger changes


Anglo American Interim Results for 2015 include the following cited on the Internet. “Improved operational performance and accelerated cost and capex reductions to mitigate price weakness” says the company in its financial reporting. Group underlying EBIT of $1.9 billion, a 36% decrease due to sharply weaker commodity prices ($1.9 billion underlying EBIT impact), Partially offset by weaker producer country currencies and cost reductions ($0.6 billion underlying EBIT benefit), Commodity price-driven impairments of $3.5 billion after tax, including $2.9 billion at Minas-Rio

FUTURE LOOKING PROJECTIONS include: $1.5 billion of operating and indirect cost reductions and productivity gains targeted in H2 2015 and 2016 (operating costs $800 million, productivity gains $400 million, indirect costs $300 million) Additional company capital expenditure reductions of up to $1.0 billion by end 2016 $1.6 billion of “disposal proceeds” delivered in July 2015

Excellant due diligence analysis of changing rail values as companies by William Greenfield

This Is pretty thought provoking from an economics view of how railway operating companies can be valued as by investors in these changing times.

The logic is written by William Greenfield . Remember. This is just one benchmark approach.

WHY ARE most profitable railroad railroad company stocks down in mid year 2015 so far? Mr Greenfield points out that Railroads are in the transportation industry and for the last 15-20 years they have enjoyed one major advantage over all other forms of transportation – expensive oil. Other forms of land transportation, such as trucking, use more oil per ton-mile then a train. Therefore, when setting up a supply chain for distribution, an enterprise was willing to look at rails even though they aren’t the fastest or the most convenient (the train can’t go where the tracks aren’t laid).

Once you understand this connection he argues that you begin to see that railroads benefit from high oil prices. The senior railroad company managers know this.

He points to the commercials from rail companies like CSX Transportation (NYSE:CSX) that tell the listener how a train uses only 1 gallon of fuel to move 1 ton of goods over 480 miles.

While these commercials are telling you how great trains are for the environment relative to, say, trucks, they are also telling you their greatest economical advantage – not having to pay for a lot oil.

This of course also tells us that their greatest weakness. The weakness is cheap oil.

Due Diligence as an investor in rail companies.

In order to really get an idea of what we can expect from NSC, and really from any railroad going forward, Greenfield argues that we need to go back to a time when oil was last at ~$50/barrel (or lower) after adjusting for inflation.

Check the Seeking Alpha web site for his historical chart to see the detailed logic as his evidence.   (WTI Inflation-Adjusted (Chart from Macrotrends)

Log onto

US Shale Oil Output Heads for Record Drop

From Bloomberg, Jul 13, 2015

Shale fields that powered the U.S. energy renaissance will suffer the biggest drop in output since the boom began after companies idled more than half their drilling rigs.

How many crude oil train sets may be stored?

To read the entire news report, go to

Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August  the Energy Information Administration said Monday.

About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes Inc.

Mining stocks // Valuation strategic drop is huge

The Big Three iron ore producers havebbeen particularly hard hit.

World number one BHP Billiton (NYSE:BHP) fell again in New York, bringing its losses since Friday to more than 8% before some late buying limited some of the damage. Melbourne-based BHP stock value is down 45% over the last year.

BHP total market worth dipped briefly below $100 billion last Tuesday. BHP peaked at a market cap of $280 billion in 2011.

The cumulative $180 billion loss in that one company’s value is almost impossible to comprehend.

HOW MUCH? In railroad terms that is about the equivalent as a loss in value to the total current value of about two BNSF railroads.

The BHP loss in value is about three to four times the assumed infrastructure investment that all of Africa says that it needs over the next two decades.

In South Africa the recently spun off by BHP named South32 is trading nearly 20% below its May 2015 listing value.

The drop in the shares of Vale continued with the Brazilian company tanking 4% to a decade low on Tuesday. Vale as the world’s top iron ore miner has lost 34% of its market value in 2015.

The globe’s second largest miner based on revenue Rio Tinto (which relies on copper and iron for nearly 80% of its earnings) dropped 4% in heavy volume. The Anglo-Australian giant’s stock is down more than 18% since February.

For more, read

Miners’ focus shifts from investor returns to maybe survival

July 10 (Reuters) –

Hit hard by the accelerated downturn in metal prices, most global mining companies preparing to report results are likely to announce another round of austerity measures to cut costs and thereby convince investors to remain committed to the mining sector.

Outside of BHP and Rio Tinto, credit ratings and dividends are being pressured by a rout in prices on any commodity from iron ore to platinum. Directors are pressured by major stock holders to force reductions in capital expenditure, operational costs and jobs. Firing top managers is not out of the question.

Collectively, miners have been among the worst performers on London’s FTSE 100 index of blue-chip companies so far this year. The FTSE 350 mining index has fallen by about 15 percent since the start of the year. That is after a bad year in 2014.

“The picture has shifted to survival”… says Nik Stanojevic at British wealth manager Brewin Dolphin. High dividend yields and a boom in metal prices boosted mining shares from the turn of the century (2001 to 2011 with one interruption…

The downturn in prices since 2011 has exposed companies’ failure to allocate capital effectively and to shore up balance sheets, prompting many investors to take flight. Planners for ports and railways to support the old boom year should take note. New strategies need to emerge “or more heads may role” and investors walk away.

Ocean container carrriers contintinue to ignore business over capacity lessons learned decades ago by N. A. freight railroads

Also see report in the JOC

A toxic mixture of overcapacity, weak demand and aggressive commercial pricing is threatening liner shipping industry profitability for the rest of 2015, according to global shipping consultancy Drewry.  The report is published in multiple news sources, includingvLinkedin.

Drewry’s forecast that container shipping carriers might record profits of up to USD 8 billion in 2015, has been revised. The  consultancy believes that they should be lucky to break even this year with some lines expected to return to red by the end of 2015.

Drewry estimates that this year average global freight rates will decline at their fastest pace since 2011, when the fall in industry unit revenue was as great as 10%.

It points out that second quarter spot rates in the four main East-West head haul trades have been falling by 32% year-on-year.

Neil Dekker, Drewry’s director of container shipping research said: “There are not enough good homes for ships of over 8,000 teu where they can be placed without doing some damage to the supply/demand balance.”

The orderbook is starting to get out of control, with another 1.14 million teu added since January.   … investment pans backfire as ” virtually all major head haul trades are plagued by overcapacity”.

Turnover at the top hits Amtrak at a critical time says PHL Inquirer news report. / Pros and cons summary

Turnover at the top hits Amtrak at a critical time Paul Nussbaum is reporter Posted: Sunday, July 12, 2015, 3:01 AM For full report, go to

Debate points offered by independent reporter.

As it recovers from its worst accident on the Northeast Corridor, Amtrak faces frequent management turnover and structural change, n addition to chronic financial and political challenges. Former Amtrak executives say the turmoil at the top in recent years has disrupted railroad management and distracted employees from their daily duties.

Steven Ditmeyer, a former Federal Railroad Administration (FRA) executive and now an adjunct professor in railway management at Michigan State University, said: “Rapid changes in management are never good, unless they’re aimed at getting rid of nonfunctioning people. Management turmoil is of concern.”

With upper management in flux, former Amtrak executives say, Amtrak may not have worked aggressively enough after deadly train wrecks on other passenger railroads – on Dec. 1, 2013, in New York and on July 24, 2013, in Spain – to identify fixes on its rail network that could have prevented the May 12 derailment in Philadelphia that killed eight passengers and injured 200. ======

Only after the Philadelphia derailment – at the order of the Federal Railroad Administration – did Amtrak quickly install automatic-braking circuitry on the northbound side of the Frankford Junction curve, which would have prevented the fatal derailment.   Amtrak had installed that braking system 24 years earlier on the southbound side of the curve and at several other tight curves on the Northeast Corridor, to automatically slow speeding trains if the engineer doesn’t.

“Certainly one of the reactions to the Metro-North derailment [in 2013] could have been, ‘Let me take a look at all my sharp curves and make sure I have protection for all my sharp curves,’ ” said rail expert Allan Zarembski of the University of Delaware. “With the benefit of 20/20 hindsight, it would have been a good idea.”


Amtrak president and CEO Joseph Boardman rejected the argument that Amtrak missed a chance to prevent the deadly Philadelphia derailment. He said the lack of automatic-braking circuitry on the northbound side of the Frankford curve was based on Amtrak’s assumption that trains wouldn’t enter the curve at more than the 80 m.p.h. maximum speed allowed on the preceding straightaway.

Mr Boardman also defended Amtrak’s management reshuffle, the latest in a series of reorganizations in the railroad’s 45-year history to try to improve finances and operations and placate Congress.


The railroad’s operating subsidy from the federal government declined from $565 million in fiscal 2010 to $250 million this year.    Amtrak has never been able to meet its congressional mandate to turn a profit. It received $1.4 billion from Congress this year to cover the operating deficit, as well as capital costs for construction, new vehicles, and debt payments.   Because Amtrak relies on unpredictable annual federal appropriations, the railroad lurches from year to year in a constant state of near-crisis.

“It looks like a company, but it is really a government agency,” said Jim Mathews, president of the National Association of Railroad Passengers. “People complain that a ‘real’ company could be more responsive to markets and its customers. “That’s like getting angry when frogs can’t fly.”

Amtrak inherited decrepit bridges, tunnels, and equipment when it took over passenger service from the private freight railroads in 1971. Since then, its backlog of worn-out infrastructure has been growing.   Now it would require an estimated $21 billion to restore just the 457-mile Northeast Corridor (NEC) to a state of good repair. Amtrak and eight regional commuter railroads carry 750,000 passengers a day on 2,000 trains on the NEC corridor.

Boardman, Amtrak’s chief executive since 2008, has repeatedly pleaded with Congress for more money to prevent what he warned last year could be “a bigger, costlier, and far more damaging failure than anything we have seen.”

“Our senior managers have little or no experience in operating or building a railroad,” said officials of the Brotherhood of Maintenance of Way Employees, which is in negotiations for a new labor contract. “The union’s struggle to maintain safe working conditions is hampered by Amtrak senior management’s lust for complete control and railroad inexperience,” they said in a recent union newsletter. The union also cited the problems with Amtrak’s “Safe-2-Safer” program identified in a report this year by Amtrak inspector general Tom Howard. Howard found that reported employee injuries at Amtrak increased from 695 in 2009, when the program began, to 1,301 in 2013, while employee injury claims increased by about 80 percent from 2009 through 2013, with a cost of $80 million.

Boardman dismissed the union leadership’s complaints as self-serving.   He said the union’s “concern has to do with negotiating the next contract and finding an enemy … and there’s no enemy here,” he said.

Boardman’s supporters say he is under constant pressure from Congress and the Amtrak board to cut costs and increase revenue. “He’s got a board of directors of 535 people,” said Mathews, the passenger advocate, referring to Congress. “When you have a congressman deciding the price of a hamburger in a dining car, how can you possibly make the best decisions for the customer?

“When you’re in a reactive mode, you’ve lost control of your destiny…”

The Amtrak inspector general, reported last year that Amtrak had made “significant progress implementing its 2011 strategic plan and accomplishing positive results,” while noting that “a number of challenges remain to be addressed.”

In another report, Louis Thompson, a former Federal Railroad Administration official and a railways adviser to the World Bank, said last year:   “Over its lifetime, Amtrak has had just enough political support to survive but never enough to invest properly or to prosper in any single market, and there is no convincing reason to think this will change significantly with the existing organizational structure.” 215-854-4587 @nussbaumpaul Read more at