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June 05, 2009

Railfreight operators must maintain a positive outlook

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The global economic crisis has hit railfreight hard in many countries, but as John Smith, managing director of British railfreight operator First GBRf explains to Keith Barrow, the long-term outlook remains positive.

THIS year First GBRf celebrates its 10th anniversary, and since signing its first contract in April 2000, it has grown rapidly to become Britain's third-largest railfreight operator with an annual turnover of around £50 million. Mr John Smith (pictured), who has been managing director of GBRf through a decade of growth, is optimistic the company can remain successful through its first recession.
"We see different scenarios developing over different areas of our business. Coal remains strong but intermodal is struggling. Network Rail has announced a reduction in track renewals, and its new contract with us requires fewer infrastructure trains. The market for construction materials has also drifted, and road hauliers are pricing below cost to keep their businesses afloat. All this means there are challenges ahead."
johnsmith-gbrf.jpgFirst GBRf will attempt to save £1.5 million this year, but Smith is keen to stress that efficiencies must not be made at the expense of future growth. "We are well aware of where the risks lie and I think we're in a good position to manage them. It's important to take action to manage costs at a time like this, and contingency plans are very important for dealing with a downturn in traffic," he says. "Many of the assets used by railfreight operators - locomotives, wagons, and skilled people - are very hard to come by, and once you've shed those assets it's very difficult to get them back."
Despite the downturn, GBRf has been successful in securing a number of major new contracts this year. These include a five-year deal with MSC shipping company for moving containers from the port of Felixstowe to central and northern England, a five-year contract with Network Rail for infrastructure trains, and a three-year contract with Bombardier to deliver new passenger trains.
 Smith expects mail volumes to increase this year and GBRf has also been granted a license to run passenger trains, although this will initially only involve the provision of locomotives and crews. GBRf is looking at expanding into new markets in Britain and is even considering the possibility of bidding for contracts in mainland Europe, a move which has already proved successful for its two main competitors DB Schenker (formerly EWS) and Freightliner.
GBRf is a relative newcomer to the highly-competitive coal market having operated its first train for EDF Energy in 2007, but it has grown rapidly to capture a 12% slice of the market, and witnessed a 111% increase in turnover in the 2008-09 financial year. An additional 89 coal wagons are currently being delivered through leasing company VTG to help increase capacity in this sector.
Railfreight has been a major beneficiary of changes in Britain's energy market over the last decade as coal flows to power stations have switched from local collieries to long-distance movements between ports and power stations. This change has been a major driver of the 50% increase in railfreight volumes in Britain over the last decade. But with the need to reduce carbon emissions looming ever larger on the political agenda, coal-fired power stations are likely to play a smaller role in meeting the country's future energy needs. So how will this impact an industry now heavily reliant on the movement of coal?
"The jury is still out on the best way to generate electricity, and coal will still play a major role for at least 10 years, but it could have a considerable impact on railfreight," says Smith. Nonetheless, GBRf could be about to benefit from one of the alternatives to coal, and is poised to sign a five-year deal for the movement of biomass to power stations. GBRf also transports gypsum for use in the desulphurisation process at two power stations.
Smith believes there is too much pessimism in the railfreight industry, and anticipates a return to the upward trend in volumes witnessed in recent years. "The only healthy position is for us to keep growing, and the only question is how fast we can drive that growth. This will be determined by some big contracts that will be coming up in the next few years, and whether customers want to continue using a single operator. A £100 million turnover is achievable and that's where we want to go. The downturn has really shown the positive approach of our staff and with that attitude the business takes on a momentum of its own."

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