Aurizon selling intermodal business to PN/Linfox

 
  Fatty Assistant Commissioner

Location: Melbourne
Happy to condemn management (I used to be a company auditor so have plenty of experience in doing it) but i don't see anything to condemn them with just yet.
james.au

I can say from first hand experience that management of Aurizon should be well and truly condemned for creating the most poorly run rail company I've ever worked for. The decisions they make are to actively turn away work that doesn't meet their profit criteria. They're now set the company up so that when the inevitable end of the coal industry happens Aurizon will cease to exist.

Shareholders should be pummelling the stock for the complete lack of vision being shown by the clowns running it. I'll be selling my shares ASAP.

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  Fatty Assistant Commissioner

Location: Melbourne
Back at Aurizon headquarters, I personally believe this decision will ultimately be recorded as an expensive and short-sighted folly a future Aurizon CEO and board will spend hundreds of millions of dollars trying to correct at some point in the next two decades. Of course, with the unknown impact of driverless longhaul trucks on the intermodal market on the horizon, maybe it won't seem such a dumb decision in the 2020s, but I doubt it.
Sulla1

I agree. They'll look back and wonder WTF current management were thinking selling their only future proof part of the business to their major competitor.
  james.au Chief Commissioner

Location: Sydney, NSW
Here is some commentary from the Australian

http://www.theaustralian.com.au/business/opinion/john-durie/a-weighty-week-for-competition-law/news-story/8c6af82100b1fe01917cf16c1f8278be

Relevant parts of the article copied -

Aurizon boss Andrew Harding faces a tough task in getting his proposed container rail sale past the ACCC as the $220 million deal effectively combines the biggest and second-biggest players in the market.
The sale has attracted a wide range of competing bidders, including rival intermodal carriers like SCT Logistics and Australian Rail Track Corporation (ARTC), the government-owned entity which owns the bulk of the long-distance interstate railway lines across the country.
ARTC is also a keen player in the proposed Melbourne to Brisbane inland rail link.
The deal links Pacific National (PN) with Linfox for the intra state container business but PN will buy the Acacia Ridge terminal on its own thus giving it access to the main gateway into Queensland.
Qube is the operator of the terminal and of course spun off Pacific National to Global Infrastructure Partners (GIP) as part of its Asciano takeover last year.
Years back, the Chris Corrigan-controlled Patrick used to own Pacific National in a joint venture with Toll before the assets were spun-off to create Asciano. It’s a small world which is of course why the ACCC is interested. It will launch a formal inquiry shortly.

Not surprisingly, SCT was a bidder.  But interstingly, ARTC is mentioned as a bidder???
  tazzer96 Deputy Commissioner


Local sources point towards QR operating the RFTS contracts themselves. I've heard that they'll start looking for drivers in Townsville next month.
Fatty
We are all screwed then.  We all know QR aren't very good at hiring drivers.   Have only got 120-ish n the 10 months since rail fail and that's in the south east with population abundance.
  tazzer96 Deputy Commissioner


I can say from first hand experience that management of Aurizon should be well and truly condemned for creating the most poorly run rail company I've ever worked for. The decisions they make are to actively turn away work that doesn't meet their profit criteria. They're now set the company up so that when the inevitable end of the coal industry happens Aurizon will cease to exist.

Shareholders should be pummelling the stock for the complete lack of vision being shown by the clowns running it. I'll be selling my shares ASAP.
Fatty
Agree.  I have said this in another forum before.  "You can't see the future when all you choose to look at is a massive pile of coal".

Aurizon doomed themselves years ago by choosing to only follow coal in central queensland.   They have neglected everything else.  Turning away profitable contracts.   Limiting bulk materials like cattle and grain.   Completely stopping and not pursuing any bulk fuel/containers to the west/south.  

Meanwhile PN has been buying up decent NG loco's and running a fairly good intermodal service.  Aurizon meanwhile won't even return the 3900's to the north coast line.
  LancedDendrite Chief Commissioner

Location: North Haverbrook; where the monorail is king!
Not surprisingly, SCT was a bidder.  But interestingly, ARTC is mentioned as a bidder???
james.au
ARTC was probably interested in buying the Acacia Ridge terminal. SCT was probably interested in the NCL business, I can't imagine them being awfully interested in Acacia Ridge on its own considering that they only recently spent about $30 million to get themselves out of that joint.

As for why Aurizon is shutting down the Interstate Intermodal division instead of selling it - SCT & PN probably figured they could poach the interstate contracts for cheaper than buying the division as a going concern. They'd be doubling up on terminals (except for SCT in Sydney) and would inherit an existing workforce that they'd have to pare down fairly quickly in any case. Better to let Aurizon handle all of that brain damage and pick over the bits they want later. It'd look even worse to other bidders (GWA, Qube), so they'd be thinking along similar lines.

The locos and rollingstock from Interstate Intermodal will no doubt find new homes either within Aurizon (on SG grain & coalies) or with other operators.
  james.au Chief Commissioner

Location: Sydney, NSW
Not surprisingly, SCT was a bidder.  But interestingly, ARTC is mentioned as a bidder???
ARTC was probably interested in buying the Acacia Ridge terminal. SCT was probably interested in the NCL business, I can't imagine them being awfully interested in Acacia Ridge on its own considering that they only recently spent about $30 million to get themselves out of that joint.

As for why Aurizon is shutting down the Interstate Intermodal division instead of selling it - SCT & PN probably figured they could poach the interstate contracts for cheaper than buying the division as a going concern. They'd be doubling up on terminals (except for SCT in Sydney) and would inherit an existing workforce that they'd have to pare down fairly quickly in any case. Better to let Aurizon handle all of that brain damage and pick over the bits they want later. It'd look even worse to other bidders (GWA, Qube), so they'd be thinking along similar lines.

The locos and rollingstock from Interstate Intermodal will no doubt find new homes either within Aurizon (on SG grain & coalies) or with other operators.
LancedDendrite

The thing I find interesting is that ARTC were in it at all.  ARTC is track operations.  I seriously doubt their shareholder would want them entering a market that they exited almost 2 decades ago.  Unless ARTC sees their role to be terminal operators too, which I can see making some sense.  Open access terminals may increase rail usage overall.
  bingley hall Minister for Railways

Location: Last train to Skaville
Not surprisingly, SCT was a bidder.  But interestingly, ARTC is mentioned as a bidder???
ARTC was probably interested in buying the Acacia Ridge terminal. SCT was probably interested in the NCL business, I can't imagine them being awfully interested in Acacia Ridge on its own considering that they only recently spent about $30 million to get themselves out of that joint.

As for why Aurizon is shutting down the Interstate Intermodal division instead of selling it - SCT & PN probably figured they could poach the interstate contracts for cheaper than buying the division as a going concern. They'd be doubling up on terminals (except for SCT in Sydney) and would inherit an existing workforce that they'd have to pare down fairly quickly in any case. Better to let Aurizon handle all of that brain damage and pick over the bits they want later. It'd look even worse to other bidders (GWA, Qube), so they'd be thinking along similar lines.

The locos and rollingstock from Interstate Intermodal will no doubt find new homes either within Aurizon (on SG grain & coalies) or with other operators.

The thing I find interesting is that ARTC were in it at all.  ARTC is track operations.  I seriously doubt their shareholder would want them entering a market that they exited almost 2 decades ago.  Unless ARTC sees their role to be terminal operators too, which I can see making some sense.  Open access terminals may increase rail usage overall.
james.au

You assume the Australian business journos actually know what they are talking about when it comes to rail. Generally speaking they don't and much of what they report is just speculation and pub gossip they pick up from stock market analysts.

As you hint at, ARTC might have been interested in partnering with someone to get a hold on Acacia Ridge as an open access terminal.

On the other hand I doubt SCT could have funded the purchase of the interstate intermodal business without getting in too deep with a major financial backer. It would have doubled the size of the company.
  RTT_Rules Dr Beeching

Location: Dubai UAE
Not surprisingly, SCT was a bidder.  But interestingly, ARTC is mentioned as a bidder???
ARTC was probably interested in buying the Acacia Ridge terminal. SCT was probably interested in the NCL business, I can't imagine them being awfully interested in Acacia Ridge on its own considering that they only recently spent about $30 million to get themselves out of that joint.

As for why Aurizon is shutting down the Interstate Intermodal division instead of selling it - SCT & PN probably figured they could poach the interstate contracts for cheaper than buying the division as a going concern. They'd be doubling up on terminals (except for SCT in Sydney) and would inherit an existing workforce that they'd have to pare down fairly quickly in any case. Better to let Aurizon handle all of that brain damage and pick over the bits they want later. It'd look even worse to other bidders (GWA, Qube), so they'd be thinking along similar lines.

The locos and rollingstock from Interstate Intermodal will no doubt find new homes either within Aurizon (on SG grain & coalies) or with other operators.
LancedDendrite
Agree,
The discussions have probably already been had and the other potential operators have all said not interested. The fact that its loosing money is probably a string reason they don't want it. Too much hard work as you need to fix a problem so just pick-off the contracts has they come up and expand their respective businesses organically.
  james.au Chief Commissioner

Location: Sydney, NSW
SCT and others will probably buy the parts of the network through asset sales (especially locos and rolling stock that are consistent with what they already have, e.g. the LDP class) and contract acquisitions and not have to deal with a business integration.  Much easier to expand your own business than integrate another.
  bevans Site Admin

Location: Melbourne, Australia
SCT and others will probably buy the parts of the network through asset sales (especially locos and rolling stock that are consistent with what they already have, e.g. the LDP class) and contract acquisitions and not have to deal with a business integration.  Much easier to expand your own business than integrate another.
james.au

The LDP class are a hire class to Aurizon and are probably close to end of life without a refit?
  james.au Chief Commissioner

Location: Sydney, NSW
But they are basically the same as the SCT class which SCT has a few of.
  bevans Site Admin

Location: Melbourne, Australia
Refer: https://www.railpage.com.au/locos/ldp-class
  YM-Mundrabilla Minister for Railways

Location: Mundrabilla but I'd rather be in Narvik
SCT and others will probably buy the parts of the network through asset sales (especially locos and rolling stock that are consistent with what they already have, e.g. the LDP class) and contract acquisitions and not have to deal with a business integration.  Much easier to expand your own business than integrate another.

The LDP class are a hire class to Aurizon and are probably close to end of life without a refit?
bevans
The LDPs are only 8 years old are they not?
  tazzer96 Deputy Commissioner

LDP's are virtually identical to a whole bunch of other locomotives operated by aurizon, PN, SCT and likely a few others.   Only modifications that would be needed are minor ones to get consistancy in the fleet.
  M636C Minister for Railways

LDP's are virtually identical to a whole bunch of other locomotives operated by aurizon, PN, SCT and likely a few others.   Only modifications that would be needed are minor ones to get consistancy in the fleet.
tazzer96
PN bought the last three LDPs at Cardiff.
They own the biggest fleet (40) and could easily use nine more.

GWA have ten. The LDPs could replace the GWUs in SA allowing them to move to the Hunter Valley.

SCT have 15 and are expanding services.

Even SSR could lease them. They have two now.

Aurizon could keep them for Hunter Valley coal traffic, or send them to WA....

I think PN are the most likely, just because they have more of them already.

Peter
  james.au Chief Commissioner

Location: Sydney, NSW
LDP's are virtually identical to a whole bunch of other locomotives operated by aurizon, PN, SCT and likely a few others.   Only modifications that would be needed are minor ones to get consistancy in the fleet.
PN bought the last three LDPs at Cardiff.
They own the biggest fleet (40) and could easily use nine more.

GWA have ten. The LDPs could replace the GWUs in SA allowing them to move to the Hunter Valley.

SCT have 15 and are expanding services.

Even SSR could lease them. They have two now.

Aurizon could keep them for Hunter Valley coal traffic, or send them to WA....

I think PN are the most likely, just because they have more of them already.

Peter
M636C

Id say SCT are probably just as likely as they will stand to pick up a lot of the Aurizon traffic who would have an anyone but PN approach to their rail transport needs.  

Good arguments for all of them you make (and can be made).
  Big J Assistant Commissioner

Location: In Paradise
Very sad, considering the history, however privatising enabled the government to blame the company for the actions that it needs to take. However I agree with other posters basically they are staking their claim to hauling rocks. So they are exposed entirely onto those commodity markets in the long term.

What are the implications for WA?
  james.au Chief Commissioner

Location: Sydney, NSW
Link to the ACCC page for their investigation:

http://registers.accc.gov.au/content/index.phtml/itemId/1203319/fromItemId/750991

Informal at the moment.  Ill be watching what happens.
  RTT_Rules Dr Beeching

Location: Dubai UAE
Very sad, considering the history, however privatising enabled the government to blame the company for the actions that it needs to take. However I agree with other posters basically they are staking their claim to hauling rocks. So they are exposed entirely onto those commodity markets in the long term.

What are the implications for WA?
Big J
The history of hauling black rocks in Australia is linked to a chart that shows almost annual YOY growth and provided substantial returns for most of those operating in this business.



The history of hauling boxes and the financial returns does not show anywhere near the same growth or volumes and given a choice I'd know which one I'd be siding with.
  Big J Assistant Commissioner

Location: In Paradise
Very sad, considering the history, however privatising enabled the government to blame the company for the actions that it needs to take. However I agree with other posters basically they are staking their claim to hauling rocks. So they are exposed entirely onto those commodity markets in the long term.

What are the implications for WA?
The history of hauling black rocks in Australia is linked to a chart that shows almost annual YOY growth and provided substantial returns for most of those operating in this business.



The history of hauling boxes and the financial returns does not show anywhere near the same growth or volumes and given a choice I'd know which one I'd be siding with.
RTT_Rules
Totally agree for now.......

Mind you I do totally understand that they are here for the shareholders for the now. It is a free market, if there is one the gap will be filled. However in the long term they are giving up market share for quality. Will be interesting if that pans out for them. Sometimes marketshare is still important to attract investment as larger business are seen to be "too big to fail". If you go smaller and aim for high profit lines, you are seen as risk adverse and hence your growth model is contingent that today's market will continue. Your graphs clearly show the thinking and is safe. But if they want to expand will they have any capacity to go into new markets, compared to PN, Qube, SCT, now that they will get rid of their corporate knowledge in these other markets? If they want to re-enter they will have to buy it.

Reminds me of the Government. 3 year terms, hence a 2.5 year or less thinking for the cycle.

Simply look at the USA and the haulage of black rocks by BNSF. It is falling. Mind you there it is offset for now by oilcans for the short term. Longer term who knows. At least they try to make a fist of intermodal. Oh, isn't that the market AZ is vacating? Good news for PN I guess, except it will be interesting if this does get past ACCC, without some form of divestment being imposed onto PN by them.  

My statement is that it is very sad for a business with "common carrier" roots is finally stating the reality that they are here for rocks only. However as you pointed out that is totally understandable, however I question the long term sustainability. Their competitors PN, Qube, SCT aren't rushing off to kill off their Intermodal business.

Anyone with information on what the impact of this onto their WA operations will be appreciated.
  RTT_Rules Dr Beeching

Location: Dubai UAE
I don't know why Aurizon are so keen to exit the box market. They claim the interstate business hasn't made money for years. It was started up by buying the old NRR freight haulage round 10-15 years ago and went from there and they invested alot of money into it, but never got a pay back. Qld operations may have made money but PN is slowly eating at their market. If Qld makes money, it does seem strange that this works but the interstate doesn't.  They obviously looked into selling the interstate and decided there are no takers and hence just losing it down.

I suspect if they have been loosing money hand over foot for long enough, they don't see a future in the box haulage market and its easier to focus on bulk haulage. I mean how many red line reports to you issue before saying this isn't working, I'm sure this is more than a few years of losses as its going cost a bit to close it all down.

PN have a history of monumental failures in short haul boxes in Tas, Vic and NZ. It is a tad surprising they they are the out right winner of Aurizon and PN, however maybe its that PN are better connected with the local haulage feed customers.

As for the ACCC, yeah well PN have been there before. The ACCC's response then was less than perfect and I'm sure they will take this into account. The ACCC cannot stop Aurizon closing the interstate so no influence there.

As for ACCC trying to prevent or curve PN taking over Qld, you have to ask why bother? Much of the interstate is now single operator, as is NT, as is Tas, as is NZ. If they block the sale, its quite likely Aurizon will just close it down by stealth hand it over to PN over a 1-2 year period by not taking up new contracts and off-loading existing.  

Overall in this regard I don't believe the ACCC will have any significant impact on the sale apart from trying to justify their jobs.

After 20 years of open access on rail, the Australian market is proving to be a place that does not support much competition on rail outside major haulage tasks.
  james.au Chief Commissioner

Location: Sydney, NSW
As for the ACCC, yeah well PN have been there before. The ACCC's response then was less than perfect and I'm sure they will take this into account. The ACCC cannot stop Aurizon closing the interstate so no influence there.

As for ACCC trying to prevent or curve PN taking over Qld, you have to ask why bother? Much of the interstate is now single operator, as is NT, as is Tas, as is NZ. If they block the sale, its quite likely Aurizon will just close it down by stealth hand it over to PN over a 1-2 year period by not taking up new contracts and off-loading existing.  

Overall in this regard I don't believe the ACCC will have any significant impact on the sale apart from trying to justify their jobs.

After 20 years of open access on rail, the Australian market is proving to be a place that does not support much competition on rail outside major haulage tasks.
RTT_Rules

If the ACCC is doing its job it will look at whether there was a better deal from a competition perspective.  For example:

ARTC is mentioned as a bidder.  As noted up thread, possibly for Acacia Ridge (ARTC Bromelton hasn't been opened yet).  Now if ARTC was to own it it would most likely own it as an open access terminal which may provide easier access to operators.  If PN is unregulated here, it may not allow terminal operations, meaning rail carriers are shut out.  If ARTC looks at this and says that PN has paid a higher price to buy this, they may either block the sale, or put regulations in place to ensure access to third parties.

Similarly for the NCLQ.  If say SCT had a decent bid, but PN had a bigger one as it saw monopoly profits on the horizon, then ACCC may have a path of action if they see that this has the effect of lessening competition.

Lets see what the issues paper comes back with.
  Sulla1 Chief Commissioner

Almost all of the Western Australian operations are operated by the new Bulk Division based in Perth, which handles over 50-million tonnes of iron ore, bauxite, alumina and nickel products in WA, and also manages Aurizon's Mt Isa line contracts, cattle and grain in Queensland. Other than the interstate intermodal, at this stage it's hard to see traffic operations changing much, with the exception of some intermodal rollingstock being cascaded down to replace older bulk wagons and locomotives. The surviving L class will be under direct threat, plus there's rumours around that several 2800s freed up from Queensland intermodal will head west, although just what they'll be used for isn't clear to me.
  tazzer96 Deputy Commissioner

IMO, the only reason the ACCC should be involved in this is due to the Acacia ridge yard.   It was relatively open access but with PN taking over it might not be.   That means the only possible container terminals in the brisbane area not controlled by PN are Clapham yard (which was previously used by toll) and the port of brisbane.

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