Aurizon prepares to sell its Intermodal Division

 
  fzr560 Chief Train Controller

Hi Sulla, as someone who is no where near as familiar with this as you i was wondering if it is possible that the ACCC could get an injunction forcing Aurizon to sell the Intermodal business as a going concern if there is a genuine bidder on the grounds that to simply close it would substantially lessen competition

And if they did is there actually anything left to sell or has the horse bolted?

BG

There's a possibility the ACCC might attempt to do this...but it may well set an unworkable precedent where any company trying to shut down an "unprofitable operation" could be prevented from doing so in the name of competition. A lot of industries have closed or moved offshore in the last decade without interference from the ACCC - Aurizon being singled out for special treatment based on a clearly documented commercial decision might not wash with the Federal Court (in saying that I don't think Queensland intermodal is as unprofitable as Aurizon has made it out to be). The horse has probably bolted and the ACCC has probably managed to shoot it dead instead of saving it.
Agreed but I did say "if there was a genuine bidder". If no-one is interested then fine, shut it down but if another operator is prepared to offer $$$ for it but Aurizon shuts it down because of some cosy deal that they have made with PN to reduce the chance of another competitor getting a foothold in the market then that is a different story. (note I am not alleging this is what is happening, merely theorising that it would be a possible scenario).

I can understand why, for instance, GM didn't want to entertain selling it's Elizabeth plant in Adelaide to Sanjeev Gupta for him to build EVs in as that would be giving a leg up to a direct competitor but in this case Aurizon are exiting Intermodal altogether so why would they not maximise return for investors by trying to sell the business as a goer. I can think of 3 scenarios.

1/ They tried to offload it behind closed doors and no one was interested (unlikely)
2/ They don't want to give any other operator a leg up in Qld in case they establish a base and then come after their other business
3/ They did a deal with PN to share the spoils and keep other operators out.

BG

The heart of the ACCC investigation appears to be whether Aurizon and PN did a deal to reduce competition, so Option 3 is a component of the scenario. From what I recall, the PN bid was unsolicited and above the market value. In hindsight Aurizon and PN were probably kidding themselves that the ACCC wouldn't step in. I guess the ACCC wants to prove that this is blatant market ring-fencing rather than being about the best cash deal.

I suspect the ACCC's contention that Qube was "interested" may be an exageration, Qube has had plenty of opportunities to establish itself in the Queensland rail market, but has chosen to buy trucks instead of locomotives. And, as Watco demonstrates, you don't have to sit around waiting for Aurizon hand-me-down rollingstock to enter the Queensland market, just get a contract and buy what you need. In the end, my take is that the PN/Aurizon deal would have preserved the existing traffic task on rail, and if anyone else wanted to enter the market they could spend money (like PN has) to do so - there's still forty trains worth of trucks per day on the Bruce Highway.
Sulla1
Given your last statement, I still don't see that the proposed change to a small part of the over-all freight task, is anti-competitive.

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  M636C Minister for Railways

Aurizon has just moved 73 QQAY (ex-narrow gauge BEZYs) to Casino and Acacia Ridge - apparently as part of its sell off of standard gauge assets, so things are happening. Considering 300 wagons were originally included in the narrow gauge sale, PN/Toll/"add name here" will need everything not tied down to retain all of Aurizon's intermodal business on rail.

Whoever may buy the QQAY wagons will still have to remove any standard gauge fittings like steps and modified handbrakes so that they fit the NG loading gauge, and will still need to find suitable NG bogies.

Of course Aurizon could choose to sell any spare appropriate NG bogies at the same time, if they have any.

Peter
  james.au Chief Commissioner

Location: Sydney, NSW
I suspect the ACCC's contention that Qube was "interested" may be an exageration, Qube has had plenty of opportunities to establish itself in the Queensland rail market, but has chosen to buy trucks instead of locomotives. And, as Watco demonstrates, you don't have to sit around waiting for Aurizon hand-me-down rollingstock to enter the Queensland market, just get a contract and buy what you need. In the end, my take is that the PN/Aurizon deal would have preserved the existing traffic task on rail, and if anyone else wanted to enter the market they could spend money (like PN has) to do so - there's still forty trains worth of trucks per day on the Bruce Highway.
Sulla1
Re QUBE, are their volumes yet sufficient and is their route structure appropriate to warrant purchasing a fleet of locos/wagons?  Or were the incumbents (Aurizon and PN) able to capture the tonnages (either naturally through cost advantage, or through hard pricing) and make it hard for QUBE to enter?

Re Watco, they probably have a risk free take or pay contract from GrainCorp which significantly changes the investment decision making process.  If they dont have to fight for the volumes, they can invest with far more certainty.
  ParkesHub Chief Commissioner

We spoke too soon about Toll. Linfox have just purchased the entire Aurizon business in Qld including rail assets.
  james.au Chief Commissioner

Location: Sydney, NSW
Interesting development.

Who carries Linfox on the SG intermodal network?
  emerald-a Locomotive Fireman

Aurizon will move the wagons by rail for Linfox with railcrew and others transferring to Bulk from Intermodal to accomodate this.
  james.au Chief Commissioner

Location: Sydney, NSW
Aurizon will move the wagons by rail for Linfox with railcrew and others transferring to Bulk from Intermodal to accomodate this.
emerald-a
Hang on so Aurizon will keep locos and run hook and pull?

I think ill wait for the press release......
  BrentonGolding Chief Commissioner

Location: Maldon Junction
Aurizon will move the wagons by rail for Linfox with railcrew and others transferring to Bulk from Intermodal to accomodate this.
Hang on so Aurizon will keep locos and run hook and pull?

I think ill wait for the press release......
james.au
https://www.afr.com/business/aurizon-strikes-new-deal-to-sell-queensland-intermodal-business-to-linfox-for-73m-20181011-h16jz4

10 year Take or Pay deal by the looks of it

BG
  emerald-a Locomotive Fireman

There is an opt out of the hook and pull deal after 5 years, and Aurizon will maintain the wagons for Linfox.
  ParkesHub Chief Commissioner

Currently, Linfox have a long term deal with PN for the Satandard gauge. I can't see that changing too soon as Linfox built the Kewdale intermodal site on PN land with a direct access into the PN Kewdale yard.
  james.au Chief Commissioner

Location: Sydney, NSW
Satandard gauge
ParkesHub
@Dangersdan707 will love you for that one.
  james.au Chief Commissioner

Location: Sydney, NSW
Aurizon will move the wagons by rail for Linfox with railcrew and others transferring to Bulk from Intermodal to accomodate this.
Hang on so Aurizon will keep locos and run hook and pull?

I think ill wait for the press release......
https://www.afr.com/business/aurizon-strikes-new-deal-to-sell-queensland-intermodal-business-to-linfox-for-73m-20181011-h16jz4

10 year Take or Pay deal by the looks of it

BG
BrentonGolding
Thanks BG
So incentive on Linfox to fill the trains however not sure what level of take or pay this involves.
Also interestingly, this suggests that Aurizon sees that it doesnt have a cost issue with loco management but intermodal interface management (ie securing containers to move) was/is its issue.
Ill be interested to hear @Sulla1's views.
  Sulla1 Chief Commissioner

Linfox gets the Aurizon intermodal contracts, road haulage staff and access to terminals. Aurizon's Bulk Division will provide a ten year line haulage contract, with the Intermodal rail haul staff transferring to the Bulk Division.

Seems to be a potentially better deal for the future of rail freight with Aurizon keeping its toes, staff and assets in the Queenslsnd intermodal business. There may also be beneficial flow on effects for the freight business on the Central and Mt Isa lines with the Bulk Division/Linfox able to offer haulage contracts within the one Division - rather than between the Intermodal and Bulk Divisions - where shared contracts have fallen by the wayside.

Time will tell I suppose.
  jmt Deputy Commissioner
  james.au Chief Commissioner

Location: Sydney, NSW
Linfox gets the Aurizon intermodal contracts, road haulage staff and access to terminals. Aurizon's Bulk Division will provide a ten year line haulage contract, with the Intermodal rail haul staff transferring to the Bulk Division.

Seems to be a potentially better deal for the future of rail freight with Aurizon keeping its toes, staff and assets in the Queenslsnd intermodal business. There may also be beneficial flow on effects for the freight business on the Central and Mt Isa lines with the Bulk Division/Linfox able to offer haulage contracts within the one Division - rather than between the Intermodal and Bulk Divisions - where shared contracts have fallen by the wayside.

Time will tell I suppose.
Sulla1
What contracts does Aurizon currently have and where are those contracts held on the SG network (for the same customer if applicable)?
  Sulla1 Chief Commissioner

Aurizon's largest intermodal customer in Queensland would be Coles. Some of the major liquor chains also use Aurizon. Not sure who hauls that freight south of Brisbane.
  Big J Assistant Commissioner

Location: In Paradise
I think that this is a great outcome considering the alternatives (closure or near monopoly).

Would this have happened without ACCC action? Probably not.

While the ACCC are from perfect, at least they are effective. Watching the Banking Royal commission, ASIC and other financial regulators, they need to lead and be an effective regulator. They do need to use the BIG stick sometimes. ACCC are not afraid to take on the big end of town and their silks to create change.

While the deal with Linfox could have some negative effects too, but at least it gives transport customers choice. A great outcome.
  fzr560 Chief Train Controller

I think that this is a great outcome considering the alternatives (closure or near monopoly).

Would this have happened without ACCC action? Probably not.

While the ACCC are from perfect, at least they are effective. Watching the Banking Royal commission, ASIC and other financial regulators, they need to lead and be an effective regulator. They do need to use the BIG stick sometimes. ACCC are not afraid to take on the big end of town and their silks to create change.

While the deal with Linfox could have some negative effects too, but at least it gives transport customers choice. A great outcome.
Big J
Transport customers would have had plenty of choice under the previous arrangement. We are talking about a small percentage of the total intermodal freight task. We are not talking about the Nullabor.
  Sulla1 Chief Commissioner

QR's North Coast Line carries the largest intrastate intermodal task in the country, over 3-million tonnes between PN and Aurizon. That's about a third of the Nullabor, so not entirely small bickies. And also very significant to the Bruce Highway users who were staring down the barrel of 1.5-million tonnes of containers moving to road in January - roughly 750 to 1000 extra B-Doubles per week.
  bevans Site Admin

Location: Melbourne, Australia
I think that this is a great outcome considering the alternatives (closure or near monopoly).

Would this have happened without ACCC action? Probably not.

While the ACCC are from perfect, at least they are effective. Watching the Banking Royal commission, ASIC and other financial regulators, they need to lead and be an effective regulator. They do need to use the BIG stick sometimes. ACCC are not afraid to take on the big end of town and their silks to create change.

While the deal with Linfox could have some negative effects too, but at least it gives transport customers choice. A great outcome.
Big J

My concern would be the propensity of Linfox Management to move the rail based carriage to truck in line with their current business practices?
  BrentonGolding Chief Commissioner

Location: Maldon Junction
Having signed a 5 + 5 year hook and pull deal with Aurizon? I don't think so.

BG
  Big J Assistant Commissioner

Location: In Paradise
I think that this is a great outcome considering the alternatives (closure or near monopoly).

Would this have happened without ACCC action? Probably not.

While the ACCC are from perfect, at least they are effective. Watching the Banking Royal commission, ASIC and other financial regulators, they need to lead and be an effective regulator. They do need to use the BIG stick sometimes. ACCC are not afraid to take on the big end of town and their silks to create change.

While the deal with Linfox could have some negative effects too, but at least it gives transport customers choice. A great outcome.

My concern would be the propensity of Linfox Management to move the rail based carriage to truck in line with their current business practices?
bevans
I agree, but as others have said this is a financial commitment to rail. How it pans out with the cessation of rail, a continuation of this arrangement or an increase of rail.

At the very least the outcome has given a 5 year delay of total cessation.
  ParkesHub Chief Commissioner

I think that this is a great outcome considering the alternatives (closure or near monopoly).

Would this have happened without ACCC action? Probably not.

While the ACCC are from perfect, at least they are effective. Watching the Banking Royal commission, ASIC and other financial regulators, they need to lead and be an effective regulator. They do need to use the BIG stick sometimes. ACCC are not afraid to take on the big end of town and their silks to create change.

While the deal with Linfox could have some negative effects too, but at least it gives transport customers choice. A great outcome.

My concern would be the propensity of Linfox Management to move the rail based carriage to truck in line with their current business practices?
bevans
I wouldn't worry too much about that. Linfox Intermodal is the old FCL Transport. It provides a carriage service to other Linfox divisions and sends as much by rail as it can. Divisions such as FMCG (Fast Moving Consumer Goods) still send B-Dubs interstate. Arnotts in Huntingwood NSW is a good example of this. It's really up to each division President to maximise his/her division's profitability. Intermodal is run by Ian Strachan and he's a good operator, I've worked with him. Can't say the same about the insipid CEO Mark Mazurek though. If Ian get's the support from the Board, you should see a fair bit of rail action.

Edit: The Linfox Board has also mandated significant and on-going reductions in carbon emissions. Rail is part of that strategy.
  ParkesHub Chief Commissioner

Satandard gauge
@Dangersdan707 will love you for that one.
james.au
Actually, I was posting up on Railb@stard a while ago and made that typo. I was going to correct it but...well...it seemed apt!

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