Future of QR’s coal business – Part three

By Paul Bugler
Source: Rail Express – www.railexpress.com.au

To read the first part of this story click here
To read the second part of this story click here

Last week we looked at the prospects for QR’s non-coal narrow gauge freight business. So let’s look at some issues for the growing QR interstate business.
QR has established a healthy coal haulage business in the NSW Hunter Valley. As with the Queensland coal haulage business, this should create significant interest among prospective purchasers. Unlike its Queensland counterpart, it will be an “above rail” business only. If sold separately, this business is relatively uncomplicated and attractive. While competition in the Hunter Valley is hotting up with the announced entrance of Freightliner, the forecast expansion in coal volumes suggests that there will be more than enough growth for all and competition will not unduly concern potential purchasers.
The remainder of QR’s interstate business falls into two categories – the predominantly narrow gauge Western Australian business and the interstate intermodal business, both above rail only businesses.
The WA business is dominated by the south-western alumina/bauxite, grain and iron ore hauls. Of these, the alumina and iron ore businesses are particularly attractive being both train-load bulk hauls and impervious to the vagaries of weather. They also benefit from good track infrastructure. In contrast, grain suffers the same uncertainties as elsewhere in the country, including deteriorating branch line infrastructure. To add uncertainty, the main grain customer, CBH, is opening grain haulage to competition. So grain haulage continues to be a questionable business prospect. Notwithstanding this, as a package, the WA business could be quite attractive.
The way ahead with the intermodal business is less clear. It is no secret that the East-West intermodal hauls are more attractive than the perennially struggling North-South business. QR has a foot in both markets. Issues such as available margins, terminal capacity in key cities and access through Sydney will dictate how successfully QR can compete. The long awaited Southern Sydney Freight line should deliver significant improvements in freight access through the southern outskirts of Sydney but it does nothing to address the problem for northbound freight.  The line from Sydney to Newcastle is more or less at capacity. Until a way is found to provide additional affordable capacity, freight will struggle to increase volumes and achieve the critical mass that might provide a way towards commercial viability. It is open to a purchaser to abandon the North-South axis, and redeploy the assets on the East-West business but this may not be acceptable to customers. Experience suggests that customers are reluctant to use rail for an East-West solution only, but perhaps this needs to be tested.
QR has sought to differentiate itself in the intermodal market by positioning itself as a door-to-door logistics provider through acquisitions of freight forwarder CRT. It is a gamble by QR that it can capture sufficient end customer business through competing directly with the freight forwarding industry that normally supplies business to rail. Only time will tell whether this is the right move, but it places QR’s intermodal business in a different space to that of the predominant intermodal operator PN. All in all the QR intermodal business has significant growth opportunities, but also substantial challenges in achieving that growth. It is certainly a saleable business with some new, good quality assets.
So when all is said, there remain many questions as to what will be sold and how it will be packaged, but whatever the result, it will certainly have an impact on the rest of the rail industry.

*Paul Bugler has worked in the rail industry for over 30 years. In recent years he has been influential in the area of access regulation and has also been heavily involved in business development in the rail freight area with the development of open access. In 2009 he formed Lacertus Verum, a consulting firm offering rail management services particularly in the areas of business development, infrastructure access and contract negotiation - www.lacertusverum.com.au

Source: Rail Express – www.railexpress.com.au