Despite Rail America takeover, Australia is still key for Genesee & Wyoming

For the serious rail historian there is a touch of irony in GWI's latest acquisition. Rail America was one of a number of smaller North American operators that followed GWI to Australia in the late 1990s to cash in on the privatisation of various state government railfreight operations.

Rail America purchased the Victorian government owned V/Line Freight business in 1999, and despite attempts to expand interstate and turnaround the former loss-making business, it was a short-lived romance and the invaders departed with their tails between their legs just five years later. Mr Ed Burkhardt's Australian Transport Network was another operation that befell similar misfortune.

This November will see the 15th anniversary of GWI's involvement in Australia as Genesee & Wyoming Australia (GWA). The business has undergone several transformations and name changes, but where others have failed GWA has succeeded in carving out a profitable niche for itself. Dwarfed by the two main players in the Australian railfreight market it has established itself as the third biggest operator in the country.

The question has been posed as to whether GWI's purchase of Rail America will lessen the focus on its Australian operations. The short answer is that while anything is possible, it is highly unlikely the Connecticut-based owners will be taking their eyes off the prize in the short term.

GWA's operating revenue in 2011 was $US 271.5m, making it the parent company's largest operating division and accounting for just under 33% of GWI's global revenues. The Rail America agreement will see this diluted to around 20% as the number of railways under GWI control rises from 66 to 108, boosting annual revenues by 70% to around $US 1.4bn.

But GWA will still be the largest division both by size and revenue, and it's very likely that the ratio of total revenues will start to rise again within a year.

The underlying importance of the Australian operations is not lost on GWI. In February this year long-serving GWI senior executive Mr Mark Hastings transferred to Adelaide, where GWA is headquartered, to take up the new role of executive vice-president, international development.

Looking back at GWA's history, there are two defining transactions that underpin the current success down under. The first has taken over a decade to realise its full potential while the second had an immediate impact on the company's fortunes.

In 1999, agreement was reached with OneSteel (now Arrium Mining) to take over the local rail operations serving the Whyalla Steel works in South Australia. At the time this amounted to the movement of around 3 million tonnes per annum (mtpa) of iron ore from local mines and local shunting operations.

Since then the amount of ore has grown, with much now going for export, and volumes are expected to reach around 8mpta by the middle of 2013. In addition a further 3.8mtpa will come on stream later this year from deposits further afield which will be moved by rail to Whyalla over the interstate network and for which GWA has secured the haulage contract.

What really sealed GWA's current good fortune though was the 2010 purchase, debt free, of the troubled Tarcoola – Alice Springs – Darwin railway and incumbent Freightlink business for $US 320m, virtually doubling the company's revenues overnight.

These two operations and the cash flows they generate have allowed GWA to invest in new motive power – the first time any GWI subsidiary had gone for fleet renewal using new-build locomotives.

In little over eighteen months, GWA will have invested more than $A 120m ($US 125.4m) in 24 new locomotives to its roster by mid-2013. Rather than replacing older units, the bulk of these units will support the expanded ore contracts and replace leased units used on Darwin line minerals traffic.

With the Australian dollar at better than parity with its US counterpart, and GWA revenues likely to exceed $US 300m in 2012, it is likely that GWI will seek more opportunities in Australia. This could be through the acquisition of smaller second tier operators or through pursing further haulage opportunities in the minerals sector, which despite falling commodity prices looks set for further expansion.