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Scandinavian Rail Development 2013 - Mats Nyblom
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Scandinavian Rail Development 2013 - Mats Nyblom


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  • 1. What Does the Future Holdfor Hector Rail?Scandinavian Rail DevelopmentStockholm 16 April 2013
  • 2. Agenda• Short about Hector Rail• Big picture: Effects of market opening• Hector Rails loco strategy at a brief• Financing Rolling Stock as a private company• Rolling Stock Development• Organisational Development• The ERTMS challenge
  • 3. Clear business model • Independent line-haul traction between facilities/ terminals of – industrial shippers – freight forwarders – intermodal operators – passenger traffic operators – other railway companies. • Within traction concept, we also offer: – Wagons (rented during contract period) – Shunting2013-04-18 3
  • 4. Independent traction provider • Hector Rail is an independent traction provider – Not owned by any state – Not connected to any transport or forwarding company – Serves all customers on an equal basis 4
  • 5. Operation in four countries • Customers – SCA • Timber • Bio fuel – Stora Enso • Timber – Scand Fibre Logistics • Paper – Samskip Van Dieren Multimodal • Trailer, Container – Veolia Transport • Passenger traffic – SCA Transforest • Craft liner – SCT Transport • Containers – DB Schenker Rail Deutschland • Steel • 14 000 train km/day
  • 6. Before deregulation • Geography defined the organisation • The organisation covered the entire value chain • Competition didn’t exist within a certain geography 6
  • 7. From now on • We must define our business concept within the value chain • Core competences (not geography) define our organisations • The market/competition will set the value on our competences 7
  • 8. Roles in freight transport Truck feeder Feeder operator Loco owner Warehouse and Terminal operator distribution Operator Integrator Logistic solution provider
  • 9. Focused or full serviceFocused Full service• Focus on core business • Can have end customer• No problems that partners contact and provide total could see you as potential solution (this role can, competitor however, also be held by a• Can always be part of most co-ordinator) competitive solution • Can create bigger margins (together with partners with integrated offer (but which cover other parts of risks to lose as all in-house the value chain) parts may not be the most competitive or optimal)
  • 10. State ownership increases in the railwaysector• Incumbents buy New entrants in foreign countries – DB: PCC, EWS, ECR, (BLS), (Nordcargo) etc – Trenitalia: TX Logistik – SNCF: ITL, Veolia Cargo (ex R4C)• Incumbents becomes “New entrants” outside their home territory and starts competing with the domestic incumbent• Consequently private rail operations have decreased in volume• State railways has a tendency to strive for “World domination” with a full service concept
  • 11. States – Are they the best owners?• What could be the reason for a state to be an owner of a railway company? – A State can be the right owner for domestic monopolies• State owned railways tends to strive for a full service concept with risk for lack of (internal) competition• States are not the right owners in a competitive market – Risk for expecting to small returns in the business which makes the business sector less attractive to professional investors – Worst case: State subsidies • Why should tax payers (risk to) subsidize an international freight company?
  • 12. Example State Railway; history
  • 13. Example State Railway; projection 3500 100% 3000 90% LT debt 2500 80% 2000 70% Equity 1500 60%MSEK 1000 50% Solidity 500 40% 0 30% Required -500 20% solidity -1000 10% 2001 2003 2005 2007 2009 2011 2013 2015 600 MSEK new share issue >600 MSEK capital gains from divestment
  • 14. Previous structure in Sweden • Full service concept with a big number of focused services Road • Full service concept created 0,4 through internal (no NTR Logistics* competition) purchase of 0,9 0,8 focused services Wagon load – Reduces true competitiveness 4,0 of the service Traction • Try to attract customers 4,5 Waggons through networks and 0,4 political means – Reduces market for the focused services
  • 15. On the way to a more rational futurestructure? Done Road Done Logistics 0,4 • The different focused service 0,8 Truckers parts becomes own companies • Service co-ordinators create customer solutions Wagon load 4,0 Wagons 0,4 • Wagon load system provider NTR Integrated 0,9 Remains will be a concept owner and buying focused services in Private competion from suppliers Wagon companies – Similiar to forwarder – Separated trucker on the road Traction providers • Creates a dynamic market with focused service Remains providers in competition
  • 16. A dynamic railway market in Europe• State owned full service providers can limit the development to a dynamic railway business in Europe• It would be more dynamic to convert to focused service in competition in combination with co-ordinators and concept owners• The state ownership is in itself an obstacle for a more dynamic market, since it reduces the interest for private investors – Accept to low returns on the investment – Political agendas
  • 17. Conclusion:Focus on your part of the value chain• To be successful in the future market you have to define and focus on your part in the value chain – For Hector Rail: Traction provider• Reduced state ownership in the railway business would improve vitality in the sector
  • 18. Hector Rails fleet strategy in brief• Hector Rail takes long term responsibility for its locos – Try to acquire or create locos with unique capabilities – Have a mix between old and new locos – Use operational leases to a limited extent – Find optimal financing solutions – Purchase most competitive maintenance solution
  • 19. Productivity in many ways• Cost efficient traction can be realised through – Effective purchasing • Prices, fleet sizes – Efficient financing • Interest rates • Leverage • Amortisation – Efficient maintenance • Cost / km • Low down time / High availability – Careful design of operation • High utilisation of tractive effort • High mileage
  • 20. Fleet development
  • 21. Loco fleet (September 2011)Class Hector Rail 141 Hector Rail 142 Hector Rail 161 Hector Rail 241 Hector Rail 242 Hector Rail 441 Hector Rail 941 Hector Rail 942Axle config BoBo BoBo CoCo BoBo BoBo BoBo BB BBNumber 3 12 *) 6 **) 12 5 2 2 2Weight ton 86 84 129 84 85 86 90 88Axle load ton 21,5 20,9 21,5 21 21,2 21,5 22,5 22Power kW 6400 4000 5400 5600 6400 (7000) 6400 2700 1180Tractive Effort kN 275 225 420 300 300 300 300 295Max speed km/h 160 (230) 150 120 140 230 140 120 100Approval SE SE SE, NO SE, DK, DE, NO SE, DE, AT SE SE, NO (DK, DE) SEYear of manufacturing 1996 1972-75 1967 2007-2011 2000-2002 2005 2005 1995 *) thereof 11 in operation **) Thereof three in operation
  • 22. Old versus new locosNew Old• High investment costs • Lower investment costs• High availability • Lower availability• Cross border operations • Single country operation
  • 23. Hector Rail invests in Passenger Coaches • Hector Rail has purchased 42 previous DB Bm235 coaches – Designed for 200 km/h • Purpose: To provide full high speed train sets for passenger operators in Sweden
  • 24. Financing locos as a private company • Hector Rail has all our locos on the balance sheet • Financing this kind of equipment is a difficult challenge • As a private company the financier demands profitability • Over time financing has been more and more complex – Especially for older locos – Increased demands on banks • Hector Rail uses a big palette for financing – Leases, loans etc – Four different banks
  • 25. Organisational challenge:Grow quickly and perform well
  • 26. ETCS – pure horror? • ERTMS/ETCS might jeopardise a huge share of railway operations • ERTMS/ETCS might discriminate smaller operators and thereby jeopardise market opening • To avoid horror: ERTMS/ETCS implementation plan must reflect interests of all involved parties
  • 27. Background to financing challenge• ERTMS decided when railways were integrated and publicly owned – ERTMS creates no tangible customer benefits – Infrastructure benefits may in some cases offset rolling stock conversion costs – Governments, owning both the IM and RU could also apply political motives to ERTMS investments• Problems now for separated RUs – RUs don’t get any benefits from ERTMS (i.e. requires equity financing) – Governments are unwilling to support RUs – Thus, many RUs cannot finance rolling stock conversion • Most private RUs will go bankrupt• Therefore, financing solutions needed for rolling stock conversions to ERTMS
  • 28. Toll Bridge Financing structure Administer payments Equity Loan contribution Train owners Special Operators Purpose Body Infrastr. mgr.Gives “Toll” payment Repaymentdirective National government Concept • Railway operators pay for the on board equipment o Not up front, but over time when using the equipment o Similar to how to finance a new bridge through tolls