New east-west rail giant as QR finally swoops on ARG

A combined Queensland Rail National and ARG group could be offering intermodal services on the east-west route within months. ARG joint venture partners Genesee and Wyoming and Wesfarmers said this morning (Tuesday, February 14) that ARG’s rail operations would be sold to QR National, and the 43-year lease on the Western Australian track to Babcock and Brown, in a deal worth $1.3bn. QR and ARG have already been co-operating closely, and were planning to jointly bid for the Blue Scope Steel steel haulage contract, the country’s largest piece of rail business. Merger talks started mid-2005. The merger has been expected for some time, but reaction was mixed on what the impact might be on Toll Holidings’s defence of Australian Competition and Consumer Commission objections to its takeover of Patrick Corp &#8211 and on Patrick and Toll’s future rail plans. One of the regulator’s most publicised concerns was over Pacific National’s dominance of east-west intermodal, which could now be altered by the entry of QR National on the route as a major national player. However, Patrick is already moving rapidly to develop a competing independent intermodal service to Toll, likely to be spurred on again by the new QR National presence. Patrick is seeking to split up Pacific National’s intermodal capacity both by calling through the shareholders agreement on up 50% of Pacific National capacity to use or on-sell agreement and in the long term, through getting the courts to formally break up Pacific National. Patrick managing director Chris Corrigan said earlier this week that ACCC approval of its purchase of rail forwarder FCL Transport Services, the foundation of its new rail business, could come as soon as the next few weeks. The timing of the Pacific National court cases could now become critical with QR National, together with the unravelling Pacific National partners, in a scramble to set up their new services and gain key contracts on the east-west routes. Observers also point out ACCC also had wide concerns on vertical integration in ports and many other areas beyond rail, any one of which could still block Toll’s ambitions with Patrick. ARG specialises in bulk operations and is the country’s largest grain operator, which it will put together with QR National’s leading share of national coal haualge. However, rail expert Mark Carter said the pair may already have plans to extend the six-day-a-week intermodal service ARG runs from Melbourne to Adelaide and onto Perth, on a trial basis. Most of the capacity on that service is used by P&#38O or for cargo relay to Darwin. Mr Carter said QR National had been seeking terminals in all the capital cities to compete from Brisbane to Perth. AGR operates from common user intermodal terminals in many locations, but does have yard and land assets which could be redeveloped. It also has residual business in New South Wales and staff based there. QR National extended its intermodal operations from Brisbane to Melbourne in May 2004, and last year bought Melbourne-based niche intermodal operator CRT. Observers have been surprised that Genesee and Wyoming have been willing to sell, but QR National declared its determination to grow as a national operator some time ago. Genesee and Wyoming will keep the South Australian freight business, about 15% of the total. Wesfarmers said in its statement that the ACCC had taken a preliminary view that the merger was unlikely to lessen competition.

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