Why Disruption Can Mean Taking On Big Players
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Like many entrepreneurs, I launched my business because I was following a passion – I saw a problem that desperately needed solving, and that’s what I’ve set out to do.
The challenge with any disruptive business however, is that you are generally taking on established enterprises or legacy-ridden methods which will be met with resistance.
Any new business is challenging, but altering the status-quo comes with particularly acute issues, particularly for the new, little guy.
South Africa is home to a number of innovators, creators and entrepreneurs. We boast the likes of, Elon Musk, Nelson Mandela, Lebo Gunguluza, Raymond Ackerman, the Oppenheimers – the list goes on. People we can be proud of.
Recently, we have also seen a significant uptick in technology entrepreneurs.
The ecosystem has evolved and although the fraternity requires more support, the efforts by particular parties such as Knife Capital, Kalon Ventures, alongside supportive corporate programmes such as Alpha Code, Standard Bank Incubator, and Startupbootcamp (to mention only a few) has been commendable.
As an entrepreneur, it’s great to see how the landscape is evolving.
Sadly, many of the tech startups are struggling to secure success with a high failure rate. A variety of reasons are typically given for this failure. Those sited more often include issues like ‘ran out of cash’, ‘founders lacking business acumen’, ‘too early for market’, ‘no market need’, ‘slow adoption’ or customers’ ‘unwillingness to change’.
However, as a South African female entrepreneur and founder, I would like to raise the issue of unfair markets as a killer to new businesses and even new industries.
In short, state-owned monopolies that are unwilling to collaborate or open the market to private companies kills innovation and business, and therefore a bottleneck to new jobs and an inhibitor of economic growth.
I have a mission: I’m attempting to disrupt Logistics, one of the most legacy ridden industries in South Africa. After two years in business, I’ve realised that to achieve this, I also need to start a movement that advocates for the private access to public owned infrastructure of Transnet Freight Rail (TFR), the state-owned rail operator.
It’s a Goliath of a monopoly, and currently, as a startup it has been difficult to try enable the rail freight industry (i.e. private sector) if you’re fighting against an unwilling Goliath that does not play fairly.
The truth about small businesses taking on existing giants
When I launched, I thought I was solving a clear market and business need. Now, I realise the role of a disruptor is much broader than that, and it takes courage to see that vision through.
Economic theory indicates that monopolies are uncompetitive and a negative influence on free markets, with consumers typically paying the price. This is no different in the event of three South African monopolies, namely South African Airways, Eskom and Transnet Railways.
Economic growth is supported by small businesses and their ability to provide sustainable jobs. If their costs continue to rise with stagnating revenues, they are unable to absorb current or more people, which leads to stagnation of jobs versus continued population growth.
Economics 101 – more people + less/same number of jobs = unemployment conundrum!
Our new government can unlock savings to small businesses via reduced transport costs if public underutilised freight rail infrastructure was shared with private sector, which frees cash for job creation and workforce stability.
And yet government keeps looking to small business to solve the unemployment problem in South Africa, but does not pull the quick-win triggers to enable them to do so?
The case for a free market
Here’s my reality. Emptytrips and other private sector players have been privy to a variety of TFR’s unfair operational engagement processes and uncompetitive pricing methods, which I believe are holding South Africa’s economy hostage.
As many commuters are penalised with heavy toll fees, congestion and road damage, you beg to ask why are so many container and bulk trucks still transporting long haul cargo by road if we have one of the most expansive rail networks on the continent?
Transnet Freight Rail, a division of Transnet SOC Ltd has reported positive profits and revenue growth over the preceding years – however, if you look at the volumes transported, they have stagnated.
This does not mean they are doing better; it means they are simply charging more.
If our rail network system was more easily accessible by private sector, digitally enabled, capacity aggregated and prices dynamically set, more companies would default back to the old and better ways of transport (rail).
After years as a management consultant, I recognised this issue. It seemed clear that there was a real problem I could solve, and so I left my high-paying job to bootstrap a business to do just that. Yet, the Goliath must want to change.
TFR suffers from a host of allegations from corruption, bad management and sabotage. Other examples include ‘ghost trains’, were container volumes are declared empty (attracting a lower carriage fee) when the containers are indeed carrying cargo – which means a middle man is profiteering off of the network at tax-payer expense.
A survey conducted with customers of Emptytrips indicated a host of inefficiencies dealing with TFR. Currently, cargo owners are frustrated.
It’s near impossible to get hold of a responsible person to book freight by rail. Getting something as simple as a quote takes days if not weeks, sometimes with no response at all.
Your luck is even more slim if you are not a large corporate. They simply only focus on their large take-or-pay contracted volumes and have disregard for the small to medium business enterprise.
Related: 5 Ways to Support South African SMEs
If a quote is provided, it is typically uncompetitive to road transport, as such more cargo moves by road due to the lack of customer centricity.
Secondly, given that TFR barely operates on a schedule, the predictability and volume balancing is near impossible. This either leads to a policy of ‘train runs when full’ or mismatched volumes, i.e. under-utilised capacity – a cost to the economy of over R6 billion per annum.
Think about that for a moment. The idea that enabling better private sector access to the division of one of Africa’s largest state-owned monopolies could change South Africa for the better has some credibility, over and above the economic theory of free markets: Transnet owns more than 80% of the railway track in Africa, a continental Goliath.
By allowing private sector access to the rail network, efficiencies and operational dogma will be unlocked, bringing the costs to operate down, as well as opening the assets for higher utilisation, efficiency and yield.
Finding solutions for challenges
The continued strategy of Transnet International Holdings is also a vanity project. This initiative was set up by Siya Gama to try and expand TFR business into Africa, but it’s been a failure.
It should be remembered that when Maria Ramos re-structured Spoornet in the early 2000s, one of her first actions was to close Spoornet Overborder operations, and she was right to do so.
Instead, we continue to waste resources on this project with little consideration of what could make it work (such as a cross-border multi operator booking portal).
Round Trip Rates – as we have proven at EmptyTrips, offers a huge potential to increase wagon utilisation and yield by selling empty space in the existing fleet.
However, the practical impediment to this is that TFR’s booking systems are set up on the ‘One Way Rate’ system, i.e. clients are charged a rate to move freight from A to B and notionally move the empty wagon back from B to A.
This is standard throughout the railway world. But to introduce a discounted rate to move cargo back in the same wagon from B to A is not possible on the existing computer booking systems, and would be open to abuse and corruption if TFR were to simply create a lower rate option from B to A (as bookers could use this rate for clients as a One Way Rate as the system currently cannot track returning empty wagons).
From an informed view, these sorts of backhaul-subsidised freight deals are complex and could only be managed by private freight brokers – and hence this type of tariffing is best suited to a deregulated ‘Staggers’ type environment.
We developed Railfox to solve this problem, and presented it to the team at Transnet as a collaboration or even as a potential JV.
We were unfruitful in the discussions, which is a pity given that the platform can address a significant customer engagement issue and help Transnet rebuild a trusted brand alongside fair engagement with private sector. This would be similar to our international discussions with operators in the United States. A model worth exploring.
Broad benefits are the end game
As evangelists for rail, its environmental impact is what excites us at Emptytrips.
The socio-economic impact of efficient transport by sustainable and affordable methods is far-reaching for every single consumer’s daily fuel levy.
With this mindset, Emptytrips recently agreed to a pilot project with Grindrod Rail Consulting Services (GRCS) and ABinBEv to transport bottled beer by rail in containers to Lusaka, with returning containers carrying commodities.
Terms and agreements were made with TFR via GRCS prior, but when it came to loading the containers, TFR officials refused for no plausible or fair reason (none of which has been communicated either). Even a pilot project has been denied by virtue of their dominant position.
To what end? Not only is this a signal of unwillingness to open potential partnerships with startups, but it’s clearly stifling innovation, regional trade and fair business.
My hope is to create more evangelists that want to change transport, both for the environment as well as the goal of growing our economy fairly.
We should all be ambassadors for making rail great again. However, we need government to make some bold moves. We cannot have monopolistic Goliaths such as Transnet having a stronghold (and stranglehold) on our economy any longer. It hurts innovation, entrepreneurship, job creation and fair open markets.
Our extensive railway network is vastly underutilised and inefficient. Only a few of Transnet rail lines make a profit, regardless that their pricing has simply increased versus improving volumes.
This loss is made despite a huge demand for alternative logistics and transport options.
The inefficient management of the South African railway network has very much contributed to the overburdening of roads, as well as to the great amounts of interprovincial traffic.
We should advocate for private access on our rail infrastructure, after all – it is ours!
Daniel Eloff said that, “Ending this monopoly and opening the market brings new opportunities not only for South African businesses, but also for the South African people.
We need to get South Africans on the move. We need to get goods moved around and to get our people to work. By getting more freight and traffic onto our rails we will reduce damage to our roads and highways.”
We echo his sentiment.
Pulling it all together
I didn’t start out wanting to take on Transnet. I wanted to work with them. I believed – and still do, even more strongly today – that we have a solution and strategy that could benefit everyone.
What I’ve learnt is that establishments don’t like to change (nor do humans). This is why traditional industries are ripe for disruption, but unfortunately it’s not always as simple or clear cut as that, because these same large establishments also tend to have a lot of power.
So, I’m faced with two choices. Give up, or take on a giant. I’m choosing to take on the giant. I’ve launched a #share2care movement and #allowaccesstransnet to this end.
Transnet opening our network of infrastructure to private operators might actually create competition for me. That’s okay. That’s how free markets work. It will just keep us on our toes and drive even greater innovation.
What is happening in your industry? Who are the incumbents? Who needs to be shaken up, and what will it take to achieve that? Until we start asking – and answering these difficult questions, the business landscape won’t change, our country won’t change and we can’t truly call ourselves innovators or disruptors.
I plan to change that. So should you.