CBH gets rolling

The CBH Group (CBH) announced its investment of up to $175 million in rolling stock and the awarding of its long-term grain rail contract to experienced American transport group, Watco Companies.

CBH Group chief executive officer Dr Andrew Crane said the announcement marked a new era for grain rail freight in WA which would deliver significantly greater value, efficiency and safety to grain growers and the industry.

"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," he said.

"We still need continued support and engagement with below-rail provider WestNet and the State Government to achieve an optimal outcome.

"Subject to a satisfactory new track access agreement and with the State and Federal Governments' $350 million funding package, our planned investment means more than $500 million has now been committed this year to the grain transport network after decades of neglect."

Dr Crane said Watco had been awarded the partnership after a year-long tender process which had drawn competitive interest from both local rail companies and those around the world.

The new 10-year agreement was set to begin in May 2012 and should see Watco provide a comprehensive rail logistics planning service including train planning and scheduling, tracking, maintenance, inventory control and crew management.

It was said Watco would operate and maintain the new rolling stock to be acquired by CBH which will include a number of locomotives and a fleet of wagons to be delivered during the next 18 months.

Dr Crane welcomed Watco to WA and had great confidence in their experience and innovative and performance-driven culture.

"This culture will enable us to implement the most efficient grain logistics supply chain for WA growers and their customers and help us to keep the maximum amount of grain on rail," he said.

"We also anticipate the new arrangements will deliver our growers material improvements in freight efficiencies.

"It marks a new era in grain freight in WA and it's certainly a historic occasion for the CBH group.

"Earlier this year CBH issued a request for proposal for the contract to transport the WA grain harvest by rail and we received strong interest from several international and Australian rail providers.

"The new service will provide freight on the northern, southern and central lines which includes all narrow and standard gauge lines within the WA rail network.

"The stock will be operated by Watco and the investment in specific transport assets is contingent on a satisfactory access agreement and will be based on the requirements agreed between CBH and the below-rail operator WestNet."

Dr Crane said it was a landmark event for the WA grain industry because it was the first time the rail transport task had been put to tender to deliver a truly competitive result for growers.

"It will operate to ensure the most effective, efficient and safe grain logistics supply chain for our growers and the Government's investment package that was announced last month was certainly a catalyst for our plans," he said.

Dr Crane said the existing interim agreement with obligatory provider; Australian Railroad Group (ARG) was due to run until April 2012 and CBH looked forward to working with ARG to ensure a smooth transition to the new arrangements for the benefit of both companies and the grain industry.

Watco executive vice president, Ed McKechnie said his company was excited to partner with CBH and the graingrowers of WA.

"We want to grow the rail business in WA and we will do that by providing exceptional customer service," he said.

"We are committed to operating a safe and efficient railroad that creates value for growers.

"This is done by moving more tonnes to port and doing it through creativity and innovation.

"We believe our experience in grain transportation and the successful execution of over 40 start-ups on railroads, rail car shops, switching operations and trans-load locations will be of significant value when commencing operations in WA."

Watco is a Kansas-based rail company with a grain division that hauls 10 million tonnes of grain a year and operates a similar size grain gathering rail network in the US states of Kansas and Oklahoma to that in WA.

CBH would be Watco's first Australian customer and Mr McKechnie said his company was excited about creating value for WA growers by moving more tonnes to port.

"Our foundation principles for our company focus on the customer and when you focus on the customer you take care of business and good things happen for railroads," he said.

"We believe it's what differentiates us from the rest of the industry."

Watco was pioneered to fix rail wagons but as the rail line that provided access to its shop deteriorated the company bought into the railroad.

"It wasn't being looked after very well and we've grown the business since then," Mr McKechnie said.

"Our goal out of this is to move those tonnes to port, to create more value to the network and to move more tonnes by rail which means a stronger rail network.

"By doing that we will be helping to make WA wheat more competitive on the world market because every dollar you can shave off transportation makes WA wheat more competitive."

Mr McKechnie said he understood the questions about an American company moving to WA but he assured growers that Watco would operate as an Australian company with "a great American heritage."

Transport Minister Simon O'Brien said there were many affected parties throughout WA apart from CBH and every Western Australian would benefit from the new partnership.

"People particularly in the Wheatbelt and metropolitan port areas will benefit from the decision," Mr O'Brien said.

"The State Government supports as much grain being kept off roads and on rail as possible."

He welcomed the "positive and vibrant" new player in the operations who he believed would positively and aggressively go out to secure a share of the market.

The announcement came just one month after the State and Federal Governments committed to re-sleepering works and rail siding upgrades to the State's Tier 1 and Tier 2 lines to the tune of $187.9m, committed to over $118m to improve Wheatbelt roads, provided a $14.5m transition assistance package to ensure rail transport remain competitive with road and committed $500,000 to look into a new rail link from the Avon to Albany and through to Kwinana.

WAFarmers transport spokesperson Colin Nicholl looked forward to the new arrangement providing increased efficiencies on the WA grain rail network leading to lower grain transport costs and to both Watco and CBH Groups growing the business of grain logistics.

"Watco is a leader in providing comprehensive rail logistics, which augments WAFarmers' efforts to maximise grain on rail throughout the existing WA grain rail network," said Mr Nicholl.

"However, WAFarmers would like to acknowledge the great work of ARG since it took over the railroad operations after privatisation of the WA grain rail network.

"WAFarmers has lobbied for increased grain rail efficiencies for many years and with the recently announced $350 million investment by State and Federal Governments, looks forward to seeing an increase in the amount of grain transported by rail.

"WAFarmers feels it is now time to re-invigorate the Grain Logistics Committee that existed until a few years ago, in which industry, users and service providers, through transparent dialogue, helped drive efficiencies throughout the WA grain freight network.

"We're pleased Watco are keen to focus on the needs of their customers, the graingrowers, and we look forward to meeting with Watco representatives in the near future."

Western Graingrowers chairman Rick Wilson was supportive of the new competition and innovation CBH had shown in linking with Watco.

"There are still a couple of concerns in terms of cross-subsidisation between the transport and handling arms of CBH and they need to act in a very transparent manner," he said.

The PGA welcomed the draft notice issued last week by the ACCC proposing to revoke the immunity from competition provided by CBH's Grain Express exclusive dealing notification.

Mr Wilson endorsed the ACCC's view that the notified conduct allowed CBH to leverage its market power in supplying receival, storage and handling services to prevent competition to supply transport services to customers who use

CBH's upcountry storage facilities.

"Under the Grain Express system, no incentive for supply chain costs to be driven down exists," Mr Wilson said.

"CBH has been exploiting the arrangements by levying charges within an opaque environment with some surcharges not even being known to the purchaser until after the event."