Macquarie looks at options for One Rail sale

 
  bingley hall Minister for Railways

Location: Last train to Skaville

Your comment about 1rail loosing business on the Darwin to Adelaide how much have they lost?
8502

I went back and did some Googling.

There doesn't seem to be any definitive data source for freight volumes on the Tarcoola to Darwin line.

The best I could come up with are the Genesee & Wyoming quarterly carload reports which cover the period from when GWA purchased the Freightlink business, commencing at the beginning of 2011, and when the sale of G & W to Brookfield was agreed to in May 2019 and the reporting ceased.  

In the carload reports for Australia there is an item for 'Intermodal' which it is fairly safe to assume is nearly all Tarcoola-Darwin line traffic. As best as I can remember between 2011-2019, with one exception, GWA had no other intermodal traffic.

The one exception was the movement of cotton in containers from the Narrabri area. It's hard to know whether that was included in the intermodal figures, or came under agricultural products. The traffic was not that regular so would not impact too strongly on the figures.

The peak year seems to be 2013 when 65148 'units' were carried. In the calendar year 2018 there were 55716 'units' carried which is a decline of around 14.5 per cent.          

I take the term 'units' to mean both 20' and 40' units rather than the Australian style of reporting TEUs (20' unit equivalents).

If we take the last quarter reported by G & W - Q1 2018 - and compare it with Q1 2019 the decline for the quarter was 8.25%. If this is projected to the end of 2019, at that rate then the decline between 2013 and 2019 would hypothetically be 21.5%

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  bingley hall Minister for Railways

Location: Last train to Skaville
A few posts back I queried the amount of double stacking on the Darwin line.

At least today's 3DA2 seen departing Alice Springs had a decent load. Apologies to those that don't do Facebook.

https://www.facebook.com/ABCAliceSprings/photos/pcb.10158371517782671/10158371492932671
  YM-Mundrabilla The Ghost of George Stephenson

Location: Mundrabilla but I'd rather be in Narvik
Hell of a lot of water in the Todd.
  bevans Site Admin

Location: Melbourne, Australia
Latest update on the Aurizon purchase of One Rail.  ACCC delaying their decision

https://www.railpage.com.au/news/s/accc-delays-decision-on-aurizon-s-one-rail-acquisition
  bingley hall Minister for Railways

Location: Last train to Skaville
More delay from the ACCC - calling for public submission by 23 June and possible handing down of determination by 14 July.

https://www.accc.gov.au/media-release/accc-consults-on-aurizon%E2%80%99s-proposed-one-rail-acquisition-and-divestiture
  8502 Assistant Commissioner

More delay from the ACCC - calling for public submission by 23 June and possible handing down of determination by 14 July.

https://www.accc.gov.au/media-release/accc-consults-on-aurizon%E2%80%99s-proposed-one-rail-acquisition-and-divestiture
bingley hall

Why is the sale taking so long?

No competition on the route as all 1rail, why the issues.
  hbedriver Deputy Commissioner

Surely the true competitive tension in respect of coal haulage is not between rail operators, but between coal and alternate fuels. They could be gas (yes, I know, but the price will eventually fall), or renewables. Note that some of the coal haulage currently will cease shortly, as power stations close (Liddell I think within 12 months, others to follow soon). Strikes me they are getting more worried about less issues.

Non-coal haulage may appear to be a legitimate concern for ACCC, however the true competition (and which will inherently keep pricing low) is between any rail operator and the road transport industry. Much of that traffic is not tied to rail, it is about moving widgets from one place to another using whatever means possible (rail/road/air/sea). Maybe the ACCC might be better advised considering whether Federal and State Government subsidies of road transport is itself anti-competitive?
  james.au Minister for Railways

Location: Sydney, NSW
Don't forget this is a principles issue too.  Say if a decision is made here to allow lessened competition (which may or may not be an ok answer), then that precedent can be used in entirely different sectors to come to a similar decision which may be definately be the wrong answer.  ACCC has a process and principles to assess and make sure they get it right.

Paragraph 11 is also relevant:

Remedies involving demergers are rarely proposed and can present certain risks that are not present in a standard divestiture remedy and therefore require careful scrutiny. In particular, the ACCC will consider the proposed commercial and financial arrangements that Aurizon has proposed for the new entity and whether this would affect the proposed demerged business’ ability to become an effective, stand-alone and long-term competitor. This will include taking into account the proposed debt that One Rail East Coast will hold and its expected future cash flows.
ACCC


Ie, is this new entity going to be able to be a competitor or will it just fall over and cause another competition issue in the future.

The good point in this is that there are no issues being raised about the Adelaide-Darwin intermodal corridor.  Id hope that Aurizon's entry here might see a return of Aurizon to other parts of the intercapital intermodal network (Melbourne might perhaps be a somewhat logical extension of Adelaide-Darwin)
  8502 Assistant Commissioner

Non-coal haulage may appear to be a legitimate concern for ACCC, however the true competition (and which will inherently keep pricing low) is between any rail operator and the road transport industry. Much of that traffic is not tied to rail, it is about moving widgets from one place to another using whatever means possible (rail/road/air/sea). Maybe the ACCC might be better advised considering whether Federal and State Government subsidies of road transport is itself anti-competitive?
hbedriver

Trying to explain my thinking.

Aurizon adding the NT to their network should mean rail wagons could be routed from any state capital to the NT and vv for the benefit of users.  The only problem is international on a national basis by Aurizon was cancelled a few years ago so how would that work in reality since 1rail and Aurizon do not run intermodal into and out of SA/NT to the rest of the country?

So how is that a competition risk?
  james.au Minister for Railways

Location: Sydney, NSW
Non-coal haulage may appear to be a legitimate concern for ACCC, however the true competition (and which will inherently keep pricing low) is between any rail operator and the road transport industry. Much of that traffic is not tied to rail, it is about moving widgets from one place to another using whatever means possible (rail/road/air/sea). Maybe the ACCC might be better advised considering whether Federal and State Government subsidies of road transport is itself anti-competitive?

Trying to explain my thinking.

Aurizon adding the NT to their network should mean rail wagons could be routed from any state capital to the NT and vv for the benefit of users.  The only problem is international on a national basis by Aurizon was cancelled a few years ago so how would that work in reality since 1rail and Aurizon do not run intermodal into and out of SA/NT to the rest of the country?
8502
As I note above, ACCC has no issues with this transaction.  Just the coal part.
  8502 Assistant Commissioner



The good point in this is that there are no issues being raised about the Adelaide-Darwin intermodal corridor.  Id hope that Aurizon's entry here might see a return of Aurizon to other parts of the intercapital intermodal network (Melbourne might perhaps be a somewhat logical extension of Adelaide-Darwin)
james.au

Would a condition of the sale mean the intermodal business MUST be maintained as this to me is the risk of getting Aurizon involved given their track record with national intermodal.
  bingley hall Minister for Railways

Location: Last train to Skaville


The good point in this is that there are no issues being raised about the Adelaide-Darwin intermodal corridor.  Id hope that Aurizon's entry here might see a return of Aurizon to other parts of the intercapital intermodal network (Melbourne might perhaps be a somewhat logical extension of Adelaide-Darwin)
Would a condition of the sale mean the intermodal business MUST be maintained as this to me is the risk of getting Aurizon involved given their track record with national intermodal.
8502

You're Looking for something that's not there.

If you go to the link in the ACCC press release that takes you to more detail on the issues, the Darwin line is not one of them.

One Rail have had plans for the last couple of years to run through Melbourne to Darwin traffic, but have struggled to make it happen.
  bingley hall Minister for Railways

Location: Last train to Skaville
Don't forget this is a principles issue too.  Say if a decision is made here to allow lessened competition (which may or may not be an ok answer), then that precedent can be used in entirely different sectors to come to a similar decision which may be definately be the wrong answer.  ACCC has a process and principles to assess and make sure they get it right.

Paragraph 11 is also relevant:

Remedies involving demergers are rarely proposed and can present certain risks that are not present in a standard divestiture remedy and therefore require careful scrutiny. In particular, the ACCC will consider the proposed commercial and financial arrangements that Aurizon has proposed for the new entity and whether this would affect the proposed demerged business’ ability to become an effective, stand-alone and long-term competitor. This will include taking into account the proposed debt that One Rail East Coast will hold and its expected future cash flows.


Ie, is this new entity going to be able to be a competitor or will it just fall over and cause another competition issue in the future.

The good point in this is that there are no issues being raised about the Adelaide-Darwin intermodal corridor.  Id hope that Aurizon's entry here might see a return of Aurizon to other parts of the intercapital intermodal network (Melbourne might perhaps be a somewhat logical extension of Adelaide-Darwin)
james.au

Paragraph 11 is the only valid argument the ACCC is putting forward - the question has to be asked why it i staking them so long?

The above nowithstanding, competition in the Hunter is an ACCC furphy. Close to 100% of ORA's coal business in the Hunter
is with one customer - Glencore on a long term contract. Glencore were instrumental in introducing ORA to the Hunter so would be unlikely to have any competition concerns, which then just leaves the status quo of Aurizon and Pac Nat competing as they have done since 2005. The ACCC forgets that prior to that Pac Nat had a monopoly in the Hunter and Aurizon had a monopoly in Queensland and the ACCC let that happen with barely a word.

As hbedriver says, the ACCC are also questioning the impact of Aurizon's ORA purchase on the non-bulk sector. This is just meddling for meddling's sake. Road is the clear competitor in this sector.

It needs to be borne in mind that competition policy principles were never meant for rail. They were meant for things like water, gas and electricity, and somehow rail just got dragged along. While it can be argued that the principles should be applied to areas like the Hunter coal, their application to other areas of rail transport has raised costs and seen rail traffic lost to road.
  james.au Minister for Railways

Location: Sydney, NSW


The good point in this is that there are no issues being raised about the Adelaide-Darwin intermodal corridor.  Id hope that Aurizon's entry here might see a return of Aurizon to other parts of the intercapital intermodal network (Melbourne might perhaps be a somewhat logical extension of Adelaide-Darwin)
Would a condition of the sale mean the intermodal business MUST be maintained as this to me is the risk of getting Aurizon involved given their track record with national intermodal.
8502
I dont think you need to make it conditional because without that what is the point of the transaction?
  james.au Minister for Railways

Location: Sydney, NSW
Paragraph 11 is the only valid argument the ACCC is putting forward - the question has to be asked why it i staking them so long?

The above nowithstanding, competition in the Hunter is an ACCC furphy. Close to 100% of ORA's coal business in the Hunter
is with one customer - Glencore on a long term contract. Glencore were instrumental in introducing ORA to the Hunter so would be unlikely to have any competition concerns, which then just leaves the status quo of Aurizon and Pac Nat competing as they have done since 2005. The ACCC forgets that prior to that Pac Nat had a monopoly in the Hunter and Aurizon had a monopoly in Queensland and the ACCC let that happen with barely a word.

As hbedriver says, the ACCC are also questioning the impact of Aurizon's ORA purchase on the non-bulk sector. This is just meddling for meddling's sake. Road is the clear competitor in this sector.

It needs to be borne in mind that competition policy principles were never meant for rail. They were meant for things like water, gas and electricity, and somehow rail just got dragged along. While it can be argued that the principles should be applied to areas like the Hunter coal, their application to other areas of rail transport has raised costs and seen rail traffic lost to road.
bingley hall

Given what they say in para 11, Id suggest that they dont have enough experience with such a divestiture to make a quick decision.  We are a small economy and there would be limited instances of an equivalent deal feature to draw from that can guide the ACCC decision.  

Re the Hunter, I don't think it is a furphy.  if you go back and read the ACCC contemplation of the PN/AZ possible deals, they were going to shut down those deals.  The issue I see is what ACCC has said - can this thing stand up on its own feet or will we be back to the ACCC having to shut down a PN takeover in the future after it fails, which would lead to uncertainty for the Hunter coal chain.  Barriers to entry are relatively high for rail and coal rail, so keeping another operator in the sector places competitive tension on PN to limit their market power.  Having ORA disappear doesn't help anyone but PN, who arguably dont need anyone to help them more than their extremely beneficial privatisation already has.

And re your comments about historic monopolies (PN in Hunter and AZ in Queensland), I don't think ACCC can realistically act on monopolies that exist without major political pressure - ie major impacts on a broad range of consumers, and given that these situations were industrial oligopolies, the political will to intervene was clearly low.  Ie it was a B2B issue where the bargaining powers were about equal instead of a B2C issue where the consumers have next to no power at all.  Its only when monopolies may form that ACCC can get involved.

Re competition policy causing rail volumes to be lost to road - theres definitely some issues eg intermodal terminals being captured by the operators (looking at you PN and AZ) that i think have been poorly done.  And I think creating big rail companies with no competitive spirit has also been a problem (if i was able to id go back and split PN into 3 or maybe 4 smaller companies and force them to slog it out instead of gifting a big monopolist to shareholders).  And I think that is more the issue, more competition hasn't been forced into the sector and the big players have been allowed to skim margins and obstruct new entrants (eg through maintaining regulatory status quo, scrapping rolling stock they got as part of the privatisation etc).

If you want an example of how competition policy has worked well - look at the Queensland NCL and the Linfox acquisition of Aurizon's NG intermodal.  Lots of you were saying that PN should be allowed to buy it otherwise the service will die (I was a lone voice against a PN acquisition this) but I think the results speak for themselves - @Sulla1 has commented that (and correct me if im wrong please) Linfox BD activities have translated into greater volumes on the NCL than previous.  The ability of Linfox to 'innovate' to integrate, or rater the removal of the barrier between their road and rail operations, has seen rail do well.
  8502 Assistant Commissioner


If you want an example of how competition policy has worked well - look at the Queensland NCL and the Linfox acquisition of Aurizon's NG intermodal.  Lots of you were saying that PN should be allowed to buy it otherwise the service will die (I was a lone voice against a PN acquisition this) but I think the results speak for themselves - @Sulla1 has commented that (and correct me if im wrong please) Linfox BD activities have translated into greater volumes on the NCL than previous.  The ability of Linfox to 'innovate' to integrate, or rater the removal of the barrier between their road and rail operations, has seen rail do well.
james.au

Is the result here with Linfox an example of not allowing a rail company to get involved rather a transport company or freight forwarder?

Maybe Northline should be provided with an opportunity in the NT Line to develop intermodal reminding recent press states nearly $450m will be spent on new terminals in the NT for intermodal development.

I have never believed PN are good are as good as they rate themselves.
  james.au Minister for Railways

Location: Sydney, NSW

If you want an example of how competition policy has worked well - look at the Queensland NCL and the Linfox acquisition of Aurizon's NG intermodal.  Lots of you were saying that PN should be allowed to buy it otherwise the service will die (I was a lone voice against a PN acquisition this) but I think the results speak for themselves - @Sulla1 has commented that (and correct me if im wrong please) Linfox BD activities have translated into greater volumes on the NCL than previous.  The ability of Linfox to 'innovate' to integrate, or rater the removal of the barrier between their road and rail operations, has seen rail do well.
Is the result here with Linfox an example of not allowing a rail company to get involved rather a transport company or freight forwarder?

Maybe Northline should be provided with an opportunity in the NT Line to develop intermodal reminding recent press states nearly $450m will be spent on new terminals in the NT for intermodal development.

I have never believed PN are good are as good as they rate themselves.
8502
If I understand your point in the first sentence I think yes, it is an example of a logistics company incorporating rail into their operations which is perhaps a more successful way of getting rail mode share instead of rail firms trying to win more logistics carrier works.
  Sulla1 Chief Commissioner


If you want an example of how competition policy has worked well - look at the Queensland NCL and the Linfox acquisition of Aurizon's NG intermodal.  Lots of you were saying that PN should be allowed to buy it otherwise the service will die (I was a lone voice against a PN acquisition this) but I think the results speak for themselves - @Sulla1 has commented that (and correct me if im wrong please) Linfox BD activities have translated into greater volumes on the NCL than previous.  The ability of Linfox to 'innovate' to integrate, or rater the removal of the barrier between their road and rail operations, has seen rail do well.
Is the result here with Linfox an example of not allowing a rail company to get involved rather a transport company or freight forwarder?

Maybe Northline should be provided with an opportunity in the NT Line to develop intermodal reminding recent press states nearly $450m will be spent on new terminals in the NT for intermodal development.

I have never believed PN are good are as good as they rate themselves.
8502

Aurizon had significant operating cost issues with its Intermodal Division prior to divestment and closure. Between 2015 and 2017 revenue fell 28% from a high of $919-million in 2015, and this was despite hauling 405,000 TEUs in 2017 compared to 372,000 TEUs in 2015.

Long story short, Aurizon made less money hauling more containers in 2017, and the division made a loss in that year (its last).

Exactly why it cost Aurizon more than its 2017 revenue of $682.7-million to run intermodal that year, I don't know. Intermodal is not known for large margins, but making a loss it still a pretty ordinary performance - the Division appears to have had a lot of operating costs attributed to it and may have been under charging to keep business.

Fast forward to 2022, and Aurizon has cleared the decks and is using its Bulk Division to re-enter the intermodal business - Bulk already does the hook and pull for Linfox's trains. The way Aurizon is promoting business for its Mt Isa Line freight services will probably be a similar model to what it will use on the Darwin Line (if the opportunity arises), where it will offer a broad service to freight forwarders of all shapes, sizes and tonnage, they will just need to show up with their containers.

https://www.aurizon.com.au/what-we-deliver/bulk/bulk-queensland/mili-freighter
  freightgate Minister for Railways

Location: Albury, New South Wales
Time to generate more traffic types other than intermodal. Where is the cattle business case progression and what about the petroleum and other traffic available.
  ParkesHub Chief Commissioner

Fast forward to 2022, and Aurizon has cleared the decks and is using its Bulk Division to re-enter the intermodal business - Bulk already does the hook and pull for Linfox's trains. The way Aurizon is promoting business for its Mt Isa Line freight services will probably be a similar model to what it will use on the Darwin Line (if the opportunity arises), where it will offer a broad service to freight forwarders of all shapes, sizes and tonnage, they will just need to show up with their containers.

https://www.aurizon.com.au/what-we-deliver/bulk/bulk-queensland/mili-freighter
Sulla1
Curiously, Linfox have the option to take crews/locomotives from Aurizon at some point. This was the initial contractual arrangement so it may yet come to pass. The option must be coming up soon.
  Sulla1 Chief Commissioner

Fast forward to 2022, and Aurizon has cleared the decks and is using its Bulk Division to re-enter the intermodal business - Bulk already does the hook and pull for Linfox's trains. The way Aurizon is promoting business for its Mt Isa Line freight services will probably be a similar model to what it will use on the Darwin Line (if the opportunity arises), where it will offer a broad service to freight forwarders of all shapes, sizes and tonnage, they will just need to show up with their containers.

https://www.aurizon.com.au/what-we-deliver/bulk/bulk-queensland/mili-freighter
Curiously, Linfox have the option to take crews/locomotives from Aurizon at some point. This was the initial contractual arrangement so it may yet come to pass. The option must be coming up soon.
ParkesHub

I would like to think Aurizon will try to hold on to the hook and pull Linfox business - as it gives the Bulk Division a significant "operational mass" on the North Coast Line corridor for other contracts. Losing the locomotives and crews to Linfox would leave Aurizon with isolated Bulk Division operations in southern and northern Queensland with no crew depots in between, and with a much smaller 2800 class fleet.

Still, nothing surprises me anymore.
  bingley hall Minister for Railways

Location: Last train to Skaville
Hearing it should be a positive announcement tomorrow re the sale going ahead.
  Lockspike Chief Commissioner

I would like to think Aurizon will try to hold on to the hook and pull Linfox business - as it gives the Bulk Division a significant "operational mass" on the North Coast Line corridor for other contracts. Losing the locomotives and crews to Linfox would leave Aurizon with isolated Bulk Division operations in southern and northern Queensland with no crew depots in between, and with a much smaller 2800 class fleet.

Still, nothing surprises me anymore.
Sulla1
It makes sense if you break everything down into individual units or cost centres. No one seems to be concerned about the big picture... .
  james.au Minister for Railways

Location: Sydney, NSW
Not opposed subject to an undertaking by Aurizon which requires Aurizon:


(a)  to ensure that the Divestiture Business is divested from Aurizon, in a way which will result in the creation or strengthening of a viable, effective, stand-alone, independent and long term competitor, including in relation to above rail coal haulage in the Hunter Valley region of New South Wales and on the Central Queensland Coal Network;

(b)  to ensure the Divestiture Business has all the necessary associated assets and rights to compete effectively with Aurizon, including in relation to above rail coal haulage in the Hunter Valley region of New South Wales and on the Central Queensland Coal Network;

(c)  to maintain the economic viability, marketability, competitiveness and goodwill of the Divestiture Business prior to the divestiture;

(d)  to hold its interests in the Divestiture Business separate from its other assets and businesses pending divestiture of the Divestiture Business;

(e)  to appoint an Approved Independent Manager to oversee the Divestiture Business from the Control Date until completion of the divestiture of the Divestiture Business; and

(f)  to provide for the effective oversight of Aurizon’s compliance with this Undertaking.


Lots more in the undertaking but it doesnt look all that different to previous large divestitures.  Independent board, independent management team etc etc.


https://www.accc.gov.au/system/files/public-registers/documents/Aurizon%20One%20Rail%20-%20signed%20final%20%20%20undertaking%20-%20PUBLIC%20VERSION%20-%2013%20July%202022.pdf
  bevans Site Admin

Location: Melbourne, Australia
James am i right in understand the ECR Business???? (What is it) will need to be divested?

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