Going Forward

From the AFR today....
Rail company Aurizon is fighting to make its ambitious land-bridge scheme to move goods from the Top End around Australia commercially viable, but as the economy weakens, scepticism abounds over whether the haulage group can deliver on the bold plan.
The transport company has grand ambitions of railing goods up and down the 2245-kilometre Darwin-Tarcoola railway through the centre of Australia using assets acquired in its 2021 acquisition of freight rail group One Rail. Aurizon says it is in “regular” talks with potential customers.Aurizon wants to use the One Rail services it bought in 2021 to haul goods imported into Darwin down through the centre of Australia.
Most goods coming into Australia from Asia are brought down the east coast on ships but Aurizon claims it could get to cities like Sydney and Melbourne faster if they are offloaded in Darwin and put on the company’s trains.
The group, which wants to diversify away from its core coal haulage business by expanding its bulk haulage and containerised freight businesses, will soon start hauling magnetite for miner Northern Iron from Tennant Creek to Darwin for export to Asia.
Several big investors have bought Aurizon’s stock over the past 12 months in the hope that the shares, which have suffered from their association with fossil fuels, will rebound if the company can secure more bulk haulage contracts and its land-bridge strategy works.


Aurizon aspires to create a containerised freight supply chain moving some 500,000 containers annually by 2030.
But even though Aurizon’s stock price is currently being supported by a share buyback, the shares are flat on the year, underperforming the S&P/ASX 200 Index which is up 19 per cent over the past 12 months.Melbourne-based Cooper Investors, a former Aurizon shareholder that re-emerged as a substantial investor in November 2023, described Aurizon as a “stalwart” that has lagged the market in its June quarterly update to shareholders.
Other big holders of Aurizon’s stock include hedge fund L1 Capital, which took an initial position in June 2024 with a stake of 5 per cent, raising it to 6.1 per cent in September.US asset manager State Street owns about 5.9 per cent, down from 7.5 per cent in August, along with London-based Mondrian Investment Partners with about 7 per cent and the US’s Vanguard Group with just over 6 per cent.Aurizon’s income from bulk haulage and container freight services has been weaker than expected, and the company’s stock sank 9 per after it delivered results in early August.Moody’s Ratings warned in late August that the successful expansion of Aurizon’s bulk haulage and container operations will be “a key credit consideration” over the next 12 to 18 months.“Our assessment of operations factors in the success of its proposed ‘land-bridging’ strategy to convert spot services and trials into long-term contracts with new customers,” Moody’s said.But while Aurizon has completed several trials with undisclosed parties to import cars into Darwin and put them on the company’s trains to South Australia, it has not yet announced any contracts.
“We continue to have productive, regular discussions with these parties on what the next steps from an operational and commercial perspective may look like,” an Aurizon spokesman told The Australian Financial Review.Kristian Appelt, acting president of the Australian Imported Motor Vehicle Industry Association, said Aurizon’s land-bridge plan was “fairly ambitious” given the limited facilities at the Port of Darwin.
While it may make geographical sense for some cars made in Thailand or Malaysia to be offloaded from ships in Darwin, it made less sense for cars coming from Japan or China, including popular Chinese-made electric vehicles, Mr Appelt said.“Access to cheap rail is fine,” he said. “But you have to have the facilities there to bring cars off the boat.”
Cars are inspected for bugs and plants when they are imported and the most extensive quarantine facilities are at the Melbourne International RoRo & Auto Terminal.Nissan Australia said it currently has no plans to change its vehicle shipping strategy while South Korean manufacturer Kia said it had not participated in the Aurizon trials.
Aurizon’s other container haulage operations are also taking longer than expected to get going. Early last year, the company won a $1.8 billion contract with Team Global Express (TGE) from rival Pacific National and said the contract would be profitable if trains carrying goods for the logistics group across the Nullarbor and on the east coast were at least 70 per cent full.But Aurizon’s services for TGE were only running at about 60 per cent full by the end of June.Aurizon does not specify how much money it makes from its containerised freight business but said softer freight volumes led to “negative EBITDA” in 2023-24 (Macquarie Group estimated the loss was around $36 million).
The rail haulage group has forecast the business will break even this year.
Aurizon said container freight traffic reflected gross domestic product growth, economic activity and consumer demand. “Certainly, interest rates and lower consumer confidence are playing into that,” the company spokesman said.Aurizon expects long-term growth in container traffic and will benefit from “the uptick in boxes being moved when macroeconomic conditions improve”, the spokesman added.
Still, analysts remain wary of recommending the stock.
Macquarie Group analyst Ian Myles said it wanted evidence that Aurizon’s containerised freight strategy was working and that the success of the land-bridging strategy was “even more important” given the lower-than-expected TGE volumes. “Growth in bulk and container freight earning is yet to emerge and may take another one to two years,” Mr Myles said.