CBH will spend $175 million to buy new trains as part of a major overhaul of the State’s grain haulage network, after awarding a 10-year grain rail contract to US rail transport group Watco Companies.
CBH will purchase its own locomotives and a fleet of wagons to be delivered over the next 18 months, while Watco will provide the grain handler with the tools to run its new rail fleet, including train planning and scheduling, tracking and maintenance.
Watco will replace Australian Railroad Group (ARG), a subsidiary of QR National, which will finish its current agreement in April, 2012. Watco’s arrangement will start in May, 2012.
“Our decision to go to tender for the first time for our rail transport requirement has resulted in the introduction of competition for the first time in the WA grain rail freight market and the first major investment in new rolling stock for decades, ” CBH chief executive Andy Crane said.
“However, we still need continued support and engagement with below-rail provider WestNet and the State Government to achieve an optimal outcome.”
CBH road and rail contracts manager Andrew Mencshelyi said the company’s $175 million investment in rolling stock would have the capacity to move more tonnes to port than the current ARG fleet.
Watco chief commercial officer Ed McKechnie said the grain haulage task in WA was similar to that in the US.
“Our goal out of this is to move those tonnes to port, create more value for the network and keep more tonnes on rail, ” he said.
“Every dollar you can shave off transportation makes Australian wheat more competitive and makes WA stronger.”
Mr McKechnie said he understood there would be doubts about having an American company in WA’s backyard, but he reassured growers that Watco would do a good job.
In one of his last duties as Transport Minister, Simon O’Brien said the arrangement was not only significant for the grain transport network, but was a major boost to the State’s rural economy. He added it would make communities and roads safer, because it would reduce the need for more road trains.
Mr O’Brien, who last month failed to deliver funding for tier three rail lines, said CBH and Watco had opened up the possibility of saving these lines. However, Mr O’Brien would not commit to more funding.
The Watco deal came a week after the nation’s competition watchdog said growers would benefit from increased competition if the monopoly held by CBH’s Grain Express (GE) system was broken.
The Australian Competition and Consumer Commission said while it recognised the benefits in CBH offering a whole of supply chain receival, storage, handling and transport service, the forced tying arrangement was not necessary to realise these benefits.
CBH claims that it does not make a profit from GE.
Dr Crane said GE was in the best interests of growers, and the company’s aim remained to keep as much grain on rail as possible. “We are not planning for a loss of volume and we think we can bring more grain onto rail, ” he said.
Watco will be tasked with transporting an average of 368,441 million bushels of grain from 192 grain elevators to port each year.
“We want to grow the rail business in WA and we will do that by providing exceptional customer service, ” Mr McKechnie said.
A decision on the size of the locomotive and wagon fleet has yet to be made.
The final investment decision will be based on the requirements agreed between CBH and WestNet.