magine that three years ago you acquired a rail line which had not seen any freight traffic to speak for nine years until you came along. Today customers who had stayed with the railroad are breaking down the doors wanting more. Customers who left the railroad for dead are coming back in droves. And folks who never gave trains a second thought want to do business.
Imagine also that freight cars are in tight supply and that your locomotive fleet is can't keep up with the traffic growth. To cap things off, imagine you share your track with a busy passenger franchise and the government is doing everything in its power to discourage highway use by cars and trucks alike. Do you welcome this state of affairs or is it a nightmare?
To Randy Henke, Marketing Director for the English Welsh & Scottish Railway (EWS), it's definitely a welcome sight. EWS, you will recall, is the Great Britain arm of the Wisconsin Central (WC), and in this first half of 1998 has contributed $13.5 mm equity income -- a third of the WC corporate total. To find out what's up and what's ahead, I spent an afternoon with Randy in his London offices and got quite an earful.
EWS had $855 mm in revenues last year, up 15% from the year before, as it converted (to quote the WC annual report) "from a government-owned railway to a privately-owned, market-based transportation provider." The company operates about 6,000 trains a week and moves about 100 million tons of freight a year. Do the arithmetic and you get only about 320 tons per train. Is there anything wrong with this picture?
Not when you consider that the average haul is 76 miles and that 26 cars (wagons in GB; passenger cars are carriages) is a big train. Moreover, car cycles are measured in turns per week and in some cases turns per day. Coal is the big commodity, accounting for 26% of the total, yet in some markets the trains get five turns a day, which does wonders for the OR. The other major commodities are metals (13%-- British Steel is the biggest customer and growing), construction materials (13%) and petroleum (8%).
A whopping 20% comes from the biggest EWS customer of all, RailTrack, which is also a principal vendor to EWS. RailTrack, you see, owns all the rights-of-way EWS uses to move its freight, and has to apportion slots (timetable "white space," Henke calls it) not only to EWS but also to the 20-plus passenger operating companies covering Great Britain.
RailTrack has the dubious honor of sandwiching 25,000 daily trains onto about 11,000 route miles of track (roughly the size of Conrail). Yet here comes the government and its first ever "transportation white paper," issued July 22, 1998, which created a new regulatory body, the "Strategic Rail Authority" to take over what Financial Times says is the "responsibility for all passenger and freight rail transport." EWS has but a 6% market share of the GB freight market and hopes to get 20% in three years. The challenge is clearly to find the white space and equipment to do it. There's $500 mm in the budget for additional track, so there's a start. As for the rest?
Back to basics, says Henke. First, equipment. With wagons costing three times what they do in the US, clearly a new supplier was needed. Thrall Car came to the rescue, acquiring the former York Coach Works plant in the city of the same name, committing to build 2,500 wagons in five years. Moreover, General Motors is supplying 250 six-wheel-truck units similar to the SD-70 and capable of 75 mph.
Second, customers. Recall that by 1991 British Rail had pretty much run off the freight business save for some big unit train customers. BR also laid down the law and said shippers had to provide their own wagons, further discouraging non-unit train customers. Locomotives died, wagons decayed, and yards dried up.
Now comes Ed Burkardt and his merry band to say, "Not so fast; rail freight is back. Come and get it." And come they have. Henke's first priority is to build back the business of the stalwarts who stayed the course of BR's neglect. That includes the bulk coal and petroleum shippers, the aggregates crowd, and of course RailTrack.
Next come the former rail customer who knew a good thing when they had it, but who were forced to leave the rails a decade ago. That includes shippers like Super Drug, moving goods wagons from Scotland to its London distribution center overnight: an 1800 cut-off and an 0600 availability the next day. Then comes new business. Forest products from Scotland loom large here. And it includes Chunnel traffic to and from the continent, an opportunity whose potential has barely been touched.
The stakes are worth it, too. A one-percent share of Great Britain's current market is worth about $143 mm. EWS has six percent at the $855 mm above; achieving the 20% goal means revenues of $2.8 billion. Would you invest in a company with the potential to triple its revenue base in three years? Would you buy new cars if you could turn them at worst five times a week? How about the horsepower to pull them? And would you buy a railroad with no rails? I would. Because back to basics works.